The taxman has been auditing imports through the port of Mombasa for the past year after busting what is believed to be a tax evasion cartel. In addition to auditing goods released from the port, investigators are also sampling containers that pass through the independent Container Freight Stations (CFS) that are meant to decongest the port area.
So far, Kenya Revenue Authority (KRA) investigators have discovered 22 containers that managed to move through the supposedly watertight clearance system without paying a cent. Cases revolving around four containers, KRA, Kenya Ports Authority (KPA) and a businessman have ended up in court.
Two of the containers were dramatically seized by officers between Mlolongo and Mombasa, a third at Mlolongo Town near Nairobi and the fourth at a go-down in Mombasa. Sources at the centre of the investigation told the Sunday Nation that investigators had narrowed the loophole to the KPA online system Kwatos where the false entries purported to be from Simba were manually fed into the computer.
Nevertheless, both systems require a login, and subsequently an audit trail can be done. The taxman operates its own Simba 2005 online system which was interfaced with Kwatos last year after concerns over port congestion. For the first time, KRA, through the Attorney-General’s office, has began prosecuting tax evasion cases through the Anti-Corruption and Economic Crimes Act, 2003 which attracts hefty fines and harsh bail terms.
One of the cases set to be prosecuted under this Act, though unrelated to the loss of containers, involves four firms reportedly owned by a foreigner and reported to supply up to 56 per cent of the textile goods in top supermarkets and which are suspected of evading tax. The case has sent shockwaves through the system with the businessman languishing in remand after failing to pay Sh6 million bail and to secure a surety of the same amount after his accounts were frozen.
“There were no entries on the Simba system for those containers,” said an officer familiar with the container investigations who cannot be named without endangering the probe. The magnitude of the offence cannot be overstated; no business can compete with untaxed goods.
The upshot of the matter is that officers only release goods after the Simba system reflects the necessary information, authorising KPA to release the goods. But in this case, there was a disconnect between the two systems. Investigators believe the stamp authorising the release by KRA was forged; no documents were presented.
Apart from counterchecking Simba system details against manual invoice records presented by the clearing agent during physical removal, officials from KRA also inspect the truck number plate and details and container specifics. The officers are then supposed to clear or indicate that the goods are tax-exempt where applicable.
But so far, officials claim they were not aware of the removals. “We can not comment on the matter. We are conducting internal investigations while KRA and security agents are also on the case,” said KPA communications officer Bernard Osero. KPA’s Kwatos gets clearance to release goods from Simba, which in turn receives invoices from the importers or their agents.
Investigators are exploring the theory that the illegal evacuation of goods involved one cartel. The goods most affected were textile products which are popular in shopping malls in and around Nairobi. Thus far, they have looked at goods imported into the country from August and September of last year.
KRA has been working with Kenya Anti-Corruption Authority and the Office of the Prosecutor in the matter. Activation of the Anti-Corruption and Economic Crimes Act is likely to send shivers down the spines of tax suspects and money launderers — crimes that are currently also the subject of new legislation.
It comes as KRA pushes for extra specialised tax offences prosecutors. At present economic crimes are tried by special magistrates based in major towns in Kenya. The act which established KACC explicitly categorises tax evasion as a criminal act. Offences under this law include “in connection with any tax, rate or impost levied under any Act”.
Section 45 (d) specifies: “A person is guilty of an offence if the person fraudulently or otherwise unlawfully fails to pay any taxes or any fees, levies or charges payable to any public body or effects or obtains any exemption, remission, reduction or abatement from payment of any such taxes, fees, levies or charges.”
Fines range from under Sh1 million plus restitution of up to double of the loss, while sentences of up to 10 years are applicable. Magistrates are imposing stiff bail terms for suspects. In the case of the foreigner supplying supermarkets, detectives are reported to have pounced on him and found records of his debtors in a small bag he always carried with him. “You will be amazed how people who do not like paying their taxes are keen on getting their debtors to pay,” said a person in involved in the latest crackdown on tax evaders.
