Wealthy Kenyans and firms have denied the Kenya Revenue Authority (KRA) more than Sh200 billion after challenging demands for tax payments through the appeals tribunal.
KRA Commissioner-General Githii Mburu reckons that the authority has witnessed a surge in taxpayers challenging notices for unpaid duty at the Tax Appeals Tribunal (TAT).
This has stalled enforcement actions like asset freeze, deactivation of Personal Identification Numbers (PINs), travel bans and prosecution that ultimately lead to payment of unpaid taxes.
The authority has in recent months engaged in an aggressive crackdown on rich individuals and companies in the race to grow tax collections, netting thousands of tax cheats and evaders.
The onslaught on tax cheats has coincided with a jump in cases filed at the tribunal, which rose 31 percent to 408 suits in the nine months to September.
“At the tax appeals tribunal, we have over Sh200 billion there, we want those disputes resolved and those taxpayers come forward through alternative dispute resolution,” Mr Mburu said.
While at the tribunal, the taxman cannot enforce stiff measures contained in the Tax Procedures Act of 2015, which allows the taxman to issue travel bans on suspected tax cheats, collect duty directly from suppliers and bankers of defaulters and prosecute those in arrears.
The gravity of the country’s rapidly deteriorating cash-flow situation that is marked by falling revenues and worsening debt service obligations is forcing the KRA to change tack.
The authority is now encouraging firms and high-net worth persons to turn to Alternative Dispute Resolution (ADR) or settlement of disputes outside court and TAT.
Through ADR, where disputes are settled within the KRA, the taxman hopes to settle the differences swiftly and allow for collection of agreed taxes.
“We will allow them (individuals and businesses) repayment plans and if they are not going to pay everything together, we are going to be as accommodative as possible,” Mr Mburu said. He added that cases handled under ADR must be resolved within 90 days.
The KRA is racing to bring more people into the tax brackets and curb tax cheating and evasion in the quest to meet targets in an economy where Covid-19 pandemic has battered collections.
Tax collections in the three months to September dropped 14.69 percent to Sh317.6 billion, raising fears Kenya’s budget deficit for this financial year could increase due to revenue shortfall.
The KRA detectives have identified 1,309 firms and wealthy individuals that owe it billions of shillings.
The taxman reckons the tax evasion schemes include filing of fictitious value-added tax (VAT) invoices to evade payments running into billions of shillings.
Additionally, the KRA said that other firms have been faking invoices to inflate purchases of inputs in a bid to cut their VAT obligations.
The KRA flagged firms in the construction, importation of hardware and household goods, scrap metal dealers and importers of electronic items, including mobile phones for under-declaring VAT dues.
Others, especially wealthy individuals, have been hiding their sources of income while engaging in luxury spending and accumulation of property such as homes and high-end cars.
The KRA enforcement unit has been using various databases to pursue suspected tax cheats, among them bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCCA), which reveals individuals who own assets such as helicopters.
Car registration details are also being used to smoke out individuals who are driving high-end vehicles but have little to show in terms of taxes remitted.
Kenya Power meter registrations are helping the taxman to identify landlords, some of whom have been slapped with huge tax demands.
CEOs and other top managers of tax-evading companies risk being barred from flying out of the country. The authority can also deregister PINs, meaning that the affected individuals and businesses will be cut off from transactions that require proof of active registration as a taxpayer.
The list of transactions that requires proof of an active PIN certificate includes registration of land titles, approval of development plans, registration, transfer and licensing of motor vehicles and registration of business names and companies.
Others are underwriting of insurance policies, customs clearing and forwarding, payment of deposits for power connections, supplying goods and services to the State, as well as opening accounts with financial institutions.
The KRA stepped up its fight against tax evasion and sought additional funding to hire 1,000 intelligence and enforcement officers in beefing up the investigations on wealthy individuals and firms.
President Uhuru Kenyatta in November last year directed the revenue agency to hunt down wealthy individuals and firms that have for years evaded taxes and denied the country money to fund development projects.
Reduced business activity, layoffs and pay cuts that followed the imposition of restrictions to curb the spread of Covid-19 also reduced opportunities for the KRA to raise tax collections.
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