Avellon Williams
Nairobi, Kenya- In a significant victory for tax enforcement in Kenya, the Kenya Revenue Authority (KRA) has successfully won a high-profile case against China Communications Construction Company Ltd, a prominent Chinese multinational, for evading over KShs 1 billion in taxes. The Tax Appeals Tribunal (TAT) upheld KRA’s assessment, marking a decisive blow against sophisticated tax evasion schemes.
Unraveling the ‘Missing Trader’ Scheme
The case centered around a complex ‘missing trader’ VAT fraud scheme, where the Chinese firm was accused of inflating input VAT claims using fictitious invoices from shell companies. These fraudulent activities allowed the company to evade substantial tax liabilities by claiming VAT for non-existent transactions.
KRA’s investigations revealed that China Communications Construction Company Ltd had engaged in transactions with six shell companies, including Dial an Errand Ltd and Haru Limited, among others. These companies, lacking physical addresses and legitimate business operations, were used to create a façade of genuine trade, enabling the Chinese firm to claim unwarranted tax deductions.
A Web of Deception
The investigation exposed a multi-tiered network of shell companies. Tier 3 entities like Benlaz Company Ltd and Hao Yuan International Company Limited further perpetuated the fraud by claiming input VAT from other shell companies. This intricate web of deception was designed to obscure the true nature of transactions and facilitate the illicit transfer of funds to overseas accounts, including those in China.
In one striking example, Njafos Holdings Limited’s account signatory, George Makuthi Nderitu, was found to be different from the registered director, Simon Musyimi Musyoki. Similarly, Suleiman Odhiambo Oganga, the registered director of Benlaz Company, claimed his identity had been fraudulently used, highlighting the extent of the scheme’s complexity.
Tribunal’s Verdict
The Tribunal’s ruling was unequivocal. It noted that the evidence presented by KRA demonstrated an elaborate tax avoidance scheme, which the Chinese firm failed to refute. The Tribunal stated, “The Appellant failed to address the issues of fraud and tax avoidance schemes raised by the Respondent’s witness.
“Furthermore, the Tribunal emphasized the lack of credible evidence from the Chinese firm to counter KRA’s claims. “The totality of the firm’s transactions did not support a reasonable commercial transaction but was instead an elaborate scheme to avoid payment of tax in Kenya,” the Tribunal concluded.
Implications and Future Outlook
This landmark ruling not only underscores KRA’s commitment to combating tax evasion but also serves as a stern warning to other entities engaged in similar fraudulent activities. The decision reinforces the importance of transparency and accountability in corporate operations, particularly for multinational companies operating in Kenya.
As KRA Commissioner for Investigations & Enforcement remarked, “This victory is a testament to our unwavering dedication to ensuring tax compliance and protecting Kenya’s revenue base. “The case sets a precedent for future tax enforcement actions, highlighting the need for robust investigative processes and international cooperation to tackle cross-border tax evasion effectively.
RELATED: