Inside KRA's Sh162 billion stamp-gate 'scandal'
Kenya Revenue Authority (KRA) Commissioner-General Githii Mburu during an interview at the Times Towers on June 20, 2022.
The high politics of the multibillion-shilling tax stamp contracts involving the operations of Swiss multinational security printer, Sicpa, is in top gear.
The latest to join the fray is the Official Leader of Minority in the National Assembly, Opiyo Wandayi, who last week released a terse statement, in which he charged that the tax stamp contract between Kenya and Sicpa was shrouded in mystery and described the deal as “a well-articulated scheme to steal from the unsuspecting public”.
He posed the question: Who is going to benefit from the Sh162 billion scheme in the next five years? The heading of that long statement by the official leader of the Opposition was titled: ‘The makings of a Sh160 billion stamp-gate scandal’.
That statement came against the backdrop of a raging debate sparked by a recent public notice by the Kenya Revenue Authority (KRA), in which the taxman expressed intention to impose massive increases in the prices of Sicpa stamps on a range of consumer products, including soda, bottled water, fresh juices, beer, spirits, cosmetics and cigarettes.
The Kenya Association of Manufacturers (KAM) has warned that the proposed increases were bound to increase their costs and precipitate spiraling increases in consumer prices of the affected commodities.
Wandayi made three key demands: a halt on any plans to renew the Sicpa contract, a comprehensive investigation by the Auditor-General of all funds paid to KRA by manufacturers, and a full account for how these funds have been utilised.
Clearly, the Sicpa contract had evolved into a hot political potato. In a sense, this is not surprising. The world over, procurement of contracts of tax stamps and banknotes tend to be marred by controversy and corruption allegations.
In recent times, there have been hundreds of sensational corruption allegations surrounding procurement of excise tax stamp contracts in Nigeria, Brazil, Zambia, Malawi and the Philippines.
The excise stamp contract is a multibillion-shilling deal, involving the printing of stamps and provision of track and trace technology to detect fake stamps. Other than bank notes, no other security printed item is consumed in such high volumes in this country.
With Kenya having just undergone a political transition, the political context behind the controversy could not be clearer. Multinational printers of bank notes and security stamps usually rely on well-placed intermediaries in each country to penetrate the corridors of power and obtain access to these lucrative contracts.
Indeed, rent-seeking elite in Africa love these types of deals because you can negotiate backhanders to last you a lifetime. These – usually – are multi-year framework contracts where prices, volumes and terms are negotiated to cover long periods.
When a political transition happens – like it has just occurred in Kenya – the scramble for patronage of these becomes intense.
The new kids on the block must plot to reap their share of the spoils. Where the multinationals had signed contracts have been designed to gains beyond the tenure of any President, controversy must happen even as the multinational player is lobbied to accommodate the interests of the new gatekeepers.
There is a third factor. With most economies in sub-Saharan Africa in bad economic shape and governments forced to institute austerity measures, including deep cuts in development budgets, opportunities for rent-seeking that come with big budgets and big projects narrow.
Rent activity and fights to play gatekeeper for deep-pocketed foreigners tend to shift to activities involving investors looking for power purchase agreements and licences, oil companies looking for licenses on explorations blocks and fields, investors in telecommunication companies looking for frequency licences and allocations, privatisation deals, printing of IDs and passports, and procurement of banknotes and tax stamps.
Close observers of the on-going high-voltage politics around the Sicpa contract opine that even the proposal massive increases the price of it has its explanations are motivations in intra elite fights and calculations of the new power broking networks now at the centre of power following the recent political transition.
Observers believe it’s all about adjusting terms of a long and locked-in contract to accommodate gate-keeping rents for the new entrants. Yet to the manufacturers of fresh juices, soda, beer, spirits, cigarettes and bottled water, the high stamp prices being proposed are bread--and-butter issue.
For instance, the cosmetics industry – comprising mainly of SMEs – has cried that the new Sicpa stamp prices being proposed will impact negatively on its competitiveness within East Africa because Tanzania, Uganda, and Rwanda do not impose stamp duties on cosmetics.
Manufacturers of non-alcoholic beverages have also protested, charging that the proposal to increase the prices of tax stamps on their products was likely to precipitate massive rise in consumer products with negative consequences for aggregate demand.
This sector is saying that if the new rates are applied, the cost of the Sicpa stamps will be higher than the excise duty charged on the product. In the case of the category, compounded spirits and wines, where the cost of Sicpa stamp is being proposed to go up by 79 per cent. According to KAM, a comparison of the cost of stamps for alcoholic products in Kenya, Uganda, and Tanzania has revealed that Kenya is paying the highest prices to this same supplier, an indication that either negotiates poorly or that there could be major integrity issues in the management of funds collected to manage the system.
Manufacturers of beer and cider, for which the proposal is to increase stamp prices by 100 per cent, have complained that the new regime will lead to an increase in contraband beer due to widening tax gaps between Kenya and the neighbouring countries of the East African Community According to an October 2021 study that was conducted on behalf of the Tanzanian manufacturers’ lobby – Confederation of Tanzania Industries (CTI) – by international financial services advisory firm Price Water House Coopers, Sicpa tax stamps are 25 per cent higher in Tanzania, Uganda, Rwanda, Mauritius and Zambia than in Kenya.
The CTI study also revealed that, unlike in Kenya, where Sicpa tax stamps have to be affixed to a much broader range of products, the list of products in Uganda, Rwanda, Zambia, Mauritius, Zambia and Zimbabwe is much shorter.
That study also revealed that many countries in Africa, including Nigeria, Ghana and South Africa, do not apply tax stamps on products.
At a meeting with representatives of the manufacturers’ association last week, the CEO of KRA, Githii Mburu, defended the proposal to increase the price of Sicpa tax stamps on the grounds that the money was needed to offset a massive Sh4.5 billion debts that the tax man allegedly owes to the Swiss Company. He explained that the massive debt came about as a result of a subsidy on stamps for water bottlers and on depreciation of the Kenya Shilling against the Euro. Mburu’s defence raised more questions than answers.
If KRA is, indeed, raising money to pay a subsidy, is it to say that this is just going to be a one-off increase in Sicpa stamp prices that will be dropped once the subsidy amount has been recovered? Is it legal or fair to go back and retrospectively raid the consumer’s pocket to recover the cost of a subsidy you supposedly gave to him in the past?
Until there is comprehensive audit of payments and financial transaction between Sicpa and KRA as demanded by the leader of the minority in parliament, these questions remain one-ended. The Sicpa excise stamp contract is a five-year framework contract that has been running since 2015 and which expired in 2021.
Documents seen by The Weekly Review show that on expiry of the contract in 2021, KRA and Sicpa signed an addendum that not only sought to extend the engagement beyond the originally contracted five years, but introduced new terms in which the parties agreed on a hand over deal, whereby ownership of the whole ICT system and technology was to go to KRA for free, while the Swiss Company will continue to supply stamps to KRA.
The Swiss company also agreed to reduce the prices of the stamps by 50 per cent. The big question, then, is: where is the pressure to increase the prices of the tax stamps coming from when we are supposed to be getting the technology for free and the stamps at half the price?
jaindikisero@ gmail.com
