Kenya operates under a self-assessment tax regime. This applies for both direct and indirect taxes. Unique to this regime, is that, the taxpayers self-assess their tax liability and make payment on the resultant liability.
A self-assessment tax regime places an onerous and greater responsibility on taxpayers over their tax matters. Compliance with the set parameters of reporting and full disclosure is key. However, there exist pockets of non-compliance and even at times active disobedience in the form of tax fraud and evasion.
Therefore, in line with the mandate of the KRA’s tax investigation and enforcement function, through detection, non-compliance is flagged and an in-depth analysis undertaken through the various investigative tools. At the end, the investigation process culminates in assessment of the tax shortfall, mapping of the tax fraud scheme, sanctions and penalties and even prosecution.
A tax fraud scheme is seldom executed in isolation. More often than not, it is a collaborative exercise among persons or institutions, and may be knowingly or unknowingly.
Therefore, as consequence of detection and mapping of a scheme, disruption comes in handy as the most significant objective of tax investigations.
It entails among others, the dismantling of tax fraud schemes, that taking action against perpetrators, professional enablers, systems, collaborators and facilitators among others.
Where the disruption of a tax fraud scheme is not readily achieved, however, deterrence follows. To address the continued commission of the identified tax offence or the propagation of a fraudulent scheme, prosecution, imposition of penalties, taxpayer education and awareness as well as media publicity to ensure compliance are next in line.
Over time, investigations have revealed several schemes that unscrupulous individuals employ in attempts to evade paying taxes.
The KRA’s vigilance has helped to successfully deter several tax evasion schemes that would have seen the authority lose billions in taxes and jeopardised the country’s fiscal security.
All these, are geared towards the country’s common goal of self-sufficiency and boosting domestic revenue collections to help bridge the resource gap in line with the government’s Bottom-up Economic Transformation Agenda (Beta).
Tax evasion schemes foiled in the recent past include use of fake invoices to reduce tax liability or claim fraudulent tax refunds, concealment of sales through secret bank accounts, mis-declaration and under declaration as well as smuggling of goods across the borders.
The most impactful of the unearthed tax evasion schemes has been the ‘missing trader’ scheme whereby traders use fictitious invoices to claim input VAT to reduce) liability. Under the scheme, fictitious invoices depict a business transaction whereas there is no actual supply or movement of goods and services. In essence, there is no underlying commercial transaction.
Some of the successful investigations and prosecutions have led to recovery of taxes and punishment of tax offenders. The fight against tax fraud is for the common good and citizens should join our noble course towards the country’s self-sufficiency.
The writer is the Deputy Commissioner for Investigations in the Investigations & Enforcement Department at Kenya Revenue Authority (KRA)
