The Kenya Revenue Authority (KRA) failed to collect more than Sh150 billion in taxes as 3,674 taxpayers, mainly big companies, failed to report business transactions valued close to half a trillion shillings, exposing tricks companies employ to dodge taxes.
In the year ending June 2023, some 1,486 businesses categorised as large and medium taxpayers dodged Sh147 billion in taxes after failing to report Sh490 billion in revenues to KRA, the Auditor-General has revealed.
In a report on KRA’s revenue and accountability statements for the year to June 2023, Auditor-General Nancy Gathungu notes that the companies reported Sh2.5 trillion in revenues under Value Added Tax (VAT) obligations but when reporting income tax obligations reduced revenues to Sh2.05 trillion, to pay fewer corporation taxes.
“Review of taxpayers’ declarations in i-Tax system from the Large and Medium Taxpayers Offices for the 2022/2023 financial year revealed that 1,486 taxpayers declared a gross turnover of Sh2,539,360,229,377 under the VAT obligation while the same taxpayers declared gross turnover of Sh2,049,318,070,324 under the income tax obligation resulting to an under-declaration of Sh490,041,822,592 turnover under the income tax obligation.
“The under-declared turnover of Sh490,041,822,592 under the income tax obligation would have attracted a corporation tax of Sh147,012,647,716 which the Authority did not collect,” Ms Gathungu notes.
The under-declaration has exposed how businesses have avoided paying billions of shillings in taxes by lying about their revenues, even as the taxman struggles to collect enough.
During the year, KRA collected Sh944.4 billion in taxes from income profits and capital gains and missed the overall target by Sh107 billion.
The audit also notes that the under-declaration exposes gaping loopholes within KRA and calls for action on its officials who were in charge of handling the companies.
“Although Management indicated that action has been taken through the issuance of additional assessments, amendment of returns, and compliance audit of the clients, no explanation was provided why action was not taken as required by Sections 6.02(ii) and 6.03(v) and (vi) of the Domestic Tax Department Compliance Management Manual which requires Management to establish the inconsistencies and underlying causes and further prepare a report recommending action by each of the taxpayers account managers,” the audit notes.
Ms Gathungu also reported that the KRA failed to collect Sh5.1 billion under capital gains taxes from the sale of 2,188 properties valued at Sh34.3 billion. During the year, out of the Sh944.4 billion taxes on income, profits, and capital gains, Sh5,606,957,074 was collected in respect of capital gains tax.
“However, analysis of stamp duty collection reports revealed that a total of 10,528 properties valued at Sh198,625,539,869 were transferred during the financial year. Based on a sample of 3,296 properties transferred, the Authority did not collect capital gains tax revenue amounting to Sh5,146,578,129 from 2,188 properties valued at Sh34,310,520,865,” the audit notes.
Together with the Sh147 billion under-declared taxes by the large and medium companies, this means that the KRA failed to collect Sh152 billion in taxes during the year to June 2023.
During the year, the Authority collected Sh272 billion in domestic VAT, Sh263.8 billion in corporation taxes, Sh494.9 billion in pay- as- you- earn (Paye) taxes, Sh68 billion in domestic excise duties, and Sh129.9 import duty.
