State House, KRA row risks tax collection
Two directives from President William Ruto and his deputy, Rigathi Gachagua, have left the taxman’s hands tied in the war against counterfeits and tax evasion.
Senior Kenya Revenue Authority (KRA) officials told People Daily that the agency is no longer pursuing new cases of tax cheats and dealers in counterfeits as they await clear directions from the Executive.
A week, after taking over the reins at State House, Ruto directed KRA not to close any business due to tax disputes.
Addressing a thanksgiving service at Maua Stadium in Meru County, Ruto said the taxman should not use force, destroy goods or close down businesses to get taxes owed.
Instead, he encouraged the authority to be more customer-centric.
“We have already agreed with them that they will have decorum and respect and we will plan together with them so that every Kenyan pays their tax,” said Ruto.
Days later, Gachagua while speaking in Mombasa, told the taxman to adopt friendly ways of dealing with tax disputes.
He accused the Jubilee administration, whose tenure ended last month, of using State agencies like KRA to create a toxic environment for businesses through unnecessary crackdowns.
The statements by the President and his deputy have resulted in a slow down in the crackdown on tax evaders and traders in counterfeit and contraband goods. In turn, this has put the country at risk of losing billions in taxes while creating a window for contraband goods to be shipped in.
Sources at KRA told People Daily that the taxman has slowed down on crackdowns and at present, is only pursuing active court cases.
The mixed signals sent by the President and his deputy have mainly affected KRA’s Domestic Tax Department (DTD), Investigations and Enforcement Department (I&E), and the Customs and Border Control Department (C&BC). These are three main units that work closely to tame tax evasion and smuggling of goods.
Top officials at Times Towers — KRA’s headquarters in Nairobi – said the authority is in limbo, waiting for the President to communicate the government’s official position and provide clarity on how they should proceed.
“There are no new cases of tax evasion being registered at the moment,” said one source who requested anonymity due to the sensitivity of the matter. “We’ve decided to go slow on crackdown against unscrupulous businesses and our enforcement team no longer conducts any crackdowns.”
The slow down has created opportunities for dealers in counterfeit and contraband products. For instance, in Nairobi’s Nyamakima, Kariobangi and industrial area, commodities like a 13-kg container of cooking gas is being sold at Sh2,080, about 30 per cent cheaper compared to between Sh3,000 and Sh3,400 for the same container in the open market.
At Nyamakima, a spot check established that a packet of 10 pairs of AA20 size (R6) Eveready batteries was retailing at Sh400. Ordinarily, the same pack should cost about Sh1,000.
These discrepancies in prices indicated that the dealers are not paying tax for the goods, meaning that KRA is losing out.
Last March, the taxman disclosed that between 2017 and early 2022, it intercepted 5,034 cases of illicit trade and tax evasions. It also took various interventions, including penalising offenders, prosecuting others and destroying seized contraband.
High value products such as alcohol, ethanol, cigarettes, petroleum products, motorcycle and motor vehicle parts top the list of the most smuggled goods that KRA has seized in the recent past.
The most recent raids were conducted in Athi River and Thika in August and early September, before the new government took over.
For instance, during the Thika operation, KRA said one firm, Vine Pack Limited, which used to operate without a licence, produced counterfeit liquor and evaded paying taxes. As a result, the taxman seized alcoholic products worth Sh40 million from the firm.
According to the Kenya Association of Manufacturers (KAM), Kenya continues to face multiple challenges in its quest to sustain the fight against counterfeit goods.
“This has impacted on the health of consumers who unknowingly consume counterfeited goods,” said KAM Chief Executive Officer Anthony Mwangi.
Analysts said businesses will in coming months start feeling the impact of the slow down in enforcement of taxation and anti-counterfeit measures.
Illicit trade is a threat to domestic manufacturers, who are likely to experience a decline in sales if the market is flooded with counterfeits or untaxed imports.
This will strain KRA revenue collection because consumers are likely to seek the cheaper alternatives, especially at this time when the cost of living is high.
A decline in sales also means KRA will collect less taxes from businesses, leading to revenue declines for the government.
A report by the Anti-Counterfeit Agency (ACA) shows that Kenya losses up to Sh100 billion annually to counterfeits alone.
Kenya Association of Manufacturers has estimated that 40 per cent of its members’ market share is lost annually due to counterfeits, with estimates amounting to Sh30 billion (US$ 42 million) lost every year.
This loss could increase unless the taxman and the Executive start reading from the same page and re-invigorate the campaign to stop tax cheats and dealers in counterfeits and contraband goods.
KRA Commissioner-General Githii Mburu has said the authority is working on ways to get more Kenyans to pay taxes and stop trading in fake, counterfeit and contraband goods.
On his twitter page, Mburu promised that the authority will embrace dialogue and be friendlier with business entities as it ups revenue collection to bridge the new government’s funding gaps.
“We are ready as the KRA to do our best to support this government to achieve the aspirations of the Kenyan people,” Mburu said.
“Our call to all Kenyans is for them to pay taxes. We are going to engage them in a friendlier manner, a lot of dialogue and less aggression.”