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How identity theft racket is trapping Kenyans in tax debt
KRA has unearthed the racket—dubbed the identity theft tax evasion scheme—in which unsuspecting individuals are made directors or owners of companies without their knowledge.
Innocent Kenyans, including domestic workers, have been trapped in a tax evasion scam after their details were used to open shell companies used to facilitate money laundering and non-payment of taxes.
The Investigation and Enforcement Unit of the Kenya Revenue Authority (KRA) has unearthed the racket—dubbed the identity theft tax evasion scheme—in which unsuspecting individuals are made directors or owners of companies without their knowledge.
Perpetrators use the individuals’ ID and PINs to open companies that are used as conduits for tax fraud, including fictitious Value Added Tax (VAT) returns, several court filings reveal.
The enforcement agency, which is currently pursuing at least four cases of identity theft tax evasion scheme, was prompted to launch the investigation after it emerged that individuals earlier prosecuted were not aware of the companies involved in the crime.
Joy Catherine Gashengu, a trader in Mombasa, imported second-hand clothes, commonly known as mitumba, worth Sh349,481,658 between June 2, 2015 and March 12, 2020 using her domestic worker’s KRA PIN.
Ms Gashengu, who is charged in Mombasa Law Court, secretly used her employee’s national identity card to register for a KRA PIN and used it to declare the goods but failed to pay duties amounting to Sh68,078,367.
She is charged with fraud concerning tax and causing false customs declarations.
While Ms Gashengu’s house help did not find herself on the wrong side of the law, with the KRA apprehending the real culprit, another young woman, whose identity we have concealed for privacy reasons, was not as lucky.
This young woman was catching an international flight at the Jomo Kenyatta International Airport (JKIA) in Nairobi on September 10, 2024, when she was frozen from boarding the plane because she had been placed under a travel ban.
She was then arrested and handed over to the KRA’s enforcement officials. The woman was shocked to find out that she is the director of a company with a turnover and unpaid taxes worth millions of shillings.
Upon interrogation by KRA Investigators, she said that she had no knowledge of the existence and ownership of the company. She was also informed of her sole directorship in four other companies.
The woman reckoned she had never seen a series of communications and notices from the KRA that came ahead of the travel ban.
It was later established that an acquaintance used her details to register the companies that did business for over a decade while evading taxes.
The travel ban, which had been in force since September 28, 2018, was lifted as the KRA Investigators and other agencies pursued the main fraudster.
A separate KRA audit revealed hundreds of firms created fake transactions that let fraudsters milk the system by seeking VAT on goods and services without any physical trade at all.
Some companies also charged VAT on goods and services and disappeared without remitting the 16 percent consumption tax to the taxman.
The tax collection agency’s staff have in the past been accused of colluding with tax evaders and taking bribes, cutting government revenue.
The audit revealed that VAT collection performance had been stifled by fraud through the notorious ‘Missing Trader Scheme’, which involves issuing fictitious invoices to depict a business transaction where no goods and services were supplied.
In the ‘Missing Trader Scheme’, firms simulate a genuine trading process using several registered business names by trying to meet all the legal requirements of a ‘supply’ for tax purposes.
The traders in the fraudulent scheme do not supply any goods or services, but “payment” is made to create a notional cost of goods sold, which in turn is used to claim VAT refunds.
The scheme aims to delink and hide the final economic beneficiary of the purchases to avoid tax obligations.
Some victims have lost their cases even as they insisted lack of knowledge of the business dealings.
Safaricom employee Francisca Kathini George unsuccessfully defended a case in the Tax Appeals Tribunal where she had appealed against the KRA’s Sh45 million tax demand. She denied knowledge of the firm that listed her as director and owner.
“The appellant asserted that the allegation and the whole narration was not only strange to her but bizarre since at no point was she involved in any business or activity that would have amounted to supply of goods or service to warrant remittance of VAT,” said the Tax Appeals Tribunal in a judgment.
“Further, the appellant stated that the 1st respondent claims that she has a business but did not give details on the nature of the business and/or the goods or services the business was involved in.”
However, the tribunal did not find merit in her assertions, noting that she did not produce any supporting documents indicating that the income was not hers or that the association of herself to the company was erroneous.
