State must stop focusing solely on taxation

Mr James Githii Mburu – the new head honcho at the Kenya Revenue Authority (KRA)- has stormed into office with a mission to mount what is perhaps the most aggressive attack on the scourge of corruption and aggressive tax avoidance in recent years.

In a recent newspaper interview, he announced how he had served notice on many rich individuals and corporations he has identified as owing the Exchequer Sh250 billion through tax evasion in the past two years.

What magic does he want to use to achieve what his predecessors could not? By shifting the focus of dealing with tax evasion and aggressive tax avoidance through civil court cases and dispute tribunals, to recovering cash through prosecutions and administrative action.

Perhaps the most dramatic of cases of suspected tax evaders caught in Mr Mburu’s dragnet is local magnate and entrepreneur Humphrey Kariuki, who has been hit with a tax bill of Sh41 billion and is currently facing criminal prosecution at a Nairobi Court.

Mrs Tabitha Karanja, and her husband , Joseph Karanja, both founders of Naivasha-based Keroche Breweries Ltd, are also facing criminal charges where they are accused of evading taxes amounting to Sh14.4 billion.

Then there is the case where the taxman slapped some 27 sports betting firms with a demand of Sh 61 billion. The matter saw the government suspend their operating licences for several weeks.

We must all wait to see how the criminal proceeding progress and if the courts will be able to determine whether these billions of shillings being touted by KRA are indeed due to the taxman – or whether we are dealing with situations where KRA has over assessed tax obligations of these citizens.

Indeed, eyebrows are already being raised about the tactics the taxman is employing in its efforts to nail these suspected tax evaders.

We are witnessing rare cases where suspected criminals are arraigned in court to face criminals charges while at the same time being quietly approached and given offers to negotiate the assessed amounts downwards as if what is at stake were civil cases.

I support the assault on the scourge of tax evasion and aggressive tax avoidance because- as a society- we had reached a point where tax evasion was almost becoming a national sport.

We have recently seen how -away from the limelight- there has been a lucrative industry and brisk business for manufacturing and selling fictitious invoices and ETR receipts – allowing traders in imported goods to evade billions of shillings in customs duties, VAT and income duties. We have seen how a brisk business for contraband ethanol has been going on under the noses of tax authorities. In the recent raid on the premises of Africa Spirits in Thika, we discovered that there exists a brisk business for printing and selling fake excise stamps.

Still, even as KRA shifts to collecting taxes through criminal prosecutions, it must guard against the dangers of introducing a police state.

And, what does KRA’s new assault on tax evaders mean in terms of broad economic policy making by President Uhuru Kenyatta’s administration.

In his recent interview, Mr Mburu appeared to harbour the notion that the current assault on the scourge of tax evasion is what will get the government out of its current financial difficulties. An optimistic Mburu argued how there was enough money in the country and how the government would not need to borrow money if all revenue was collected. Unable to face to the ways of growing the economy, the political class is now peering at how much tax is paid on existing wealth.

If the State is serious about raising revenues, the best way to do this is to set about how we can increase corporate profitability and growth of the economy- not merely increasing levels of taxation. Today, all major companies releasing their results complain about a difficult business environment. We seem unable to reinvigorate the wealth producing parts of this economy.