Kenya’s Battle Against Financial Crime: KRA Cracks Down on Missing Trader Tax Evasion and Transit Cargo Diversion

The Kenya Revenue Authority (KRA) has stepped up its efforts to combat financial crime and increase tax revenue by investigating and disrupting sophisticated tax evasion schemes. Two prevalent schemes, missing trader tax evasion and transit cargo diversion, are currently under close scrutiny.

The Urge for Action: Tax Losses Reach Billions

Tax authorities worldwide face challenges in combating tax evasion schemes, particularly those involving the supply chain. In the case of Kenya, investigations revealed billions of shillings in annual tax losses, emphasizing the urgency for action.

Missing Trader Tax Evasion: Fictitious Businesses and Fake Invoices

One common and notorious tax evasion scheme is missing trader tax evasion, where fictitious businesses generate fake invoices to inflate input costs, effectively reducing taxable sales. In a significant case, two individuals were arrested and charged in court in 2018 for a tax evasion scheme worth Kshs. 7 billion. They had registered multiple businesses and issued fake invoices, avoiding tax payments on sales worth over Kshs. 15 billion.

The KRA’s Countermeasures: Real-Time Transit Monitoring and Regional Electronic Cargo Tracking Systems

To combat this scheme, the KRA has implemented technology such as the Real Time Transit Monitoring system and the Regional Electronic Cargo Tracking System. These advanced technologies enable comprehensive monitoring of transit cargo with fewer resources and greater precision.

However, perpetrators of these crimes have been quick to adapt and find new ways to circumvent the systems. The challenge for the KRA is to keep up with these emerging trends and ensure effective information sharing among different revenue authorities.

Transit Cargo Diversion: An Estimated Kshs. 12 Billion in Annual Tax Losses

Another significant issue is the transit cargo being diverted into the country, costing the Kenyan government an estimated Kshs. 12 billion annually in lost taxes. The introduction of real-time cargo tracking systems has led to some reduction in diversion cases, but recent interceptions at border points highlight that the problem persists.

“The findings from our investigations underscore the importance of effective information sharing among different revenue authorities,” said a spokesperson from the KRA. “We remain committed to addressing the emerging trends in transit diversion with the newly deployed systems and continue to work closely with our counterparts in the East African community to curb these illegal activities.”

A Promising Future: Reducing Tax Evasion and Increasing Voluntary Compliance

The KRA is optimistic that its rigorous investigations and technological advancements will help reduce tax evasion and increase voluntary compliance, ultimately leading to more revenue for essential development projects and better services for the Kenyan people.