The Kenya Revenue Authority (KRA) has moved 475 employees over a tax fraud scheme that has been going on at the revenue authority. The employees were moved from approving applications for value added tax (VAT) refunds. This has come as the taxman flagged thousands of businesses involved in the scheme that has been costing the State at least Sh2.5 billion every month.
According to a report that appeared in a local business newspaper, the employees who have been moved represent 74 percent of the workforce that handled VAT claims registration applications at the KRA.
Initially, the taxman had a total of 645 employees for these tasks. With the purge, only 170 employees have been left in the approval docket.
“The authority to approve VAT obligation applications has been significantly restricted, reducing the number of staff with this role from 645 to 170. This measure is designed to improve oversight and reduce opportunities for fraudulent registrations,” KRA stated in an internal confidential report.
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The purge follows an internal audit that flagged 4,434 traders in the tax fraud scheme. According to the audit, companies created fake transactions that were used to seek VAT on goods and services without any physical trade. The companies also charged VAT on goods and services and disappeared without remitting the 16 percent consumption tax.
“A thorough review of VAT data has revealed that unscrupulous traders are registering new companies solely to perpetrate VAT fraud. This fraud typically involves multiple companies or individuals, known as ‘missing traders’, who vanish with the VAT owed, severely undermining our tax collection efforts,” KRA stated.
“At registration, we have reviewed and tightened the VAT guidelines relating to the addition of VAT obligations. This includes enhanced physical verification checks and more rigorous taxpayer due diligence to ensure legitimacy before registration.”
The audit by the taxman showed that 2,080 traders sent invoices amounting to Sh19.69 billion with VAT implications of Sh2.94 billion but filed nil or no VAT returns since July 2024. On the other hand, beneficiaries claimed purchases worth Sh13.64 billion which resulted in a potential VAT loss of Sh2.14 billion.
The audit further showed that out of approximately 90,127 existing VAT obligation cases that are listed under the special category dubbed as ‘special table’, some 20,981 were inactive taxpayers, rising suspicion of tax evasion schemes through fictious transactions.
“These have been targeted for bulk deregistration to clean up the register and reduce opportunities for fraud,” KRA stated. “The remaining taxpayers under the special table are undergoing further review to determine eligibility for dormancy or suspension status.”
The ‘VAT special table’ system was introduced in the VAT returns system to block claims from nil and non-filers for VAT. A taxpayer who has been listed under ‘VAT special table’ is restricted from filing VAT returns. An attempt to file a return is blocked with the message feedback stating that ‘This PIN is currently under review for VAT compliance irregularities.’
