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Fraudsters use names of dead people to evade tax

Kinyuru Munuhe @kinyurumunuhe

Kenya Revenue Authority (KRA) could be losing much more than the reported billions of shillings through undetected tax swindling syndicates trading through companies registered with particulars of deceased individuals the People Daily can reveal.

KRA investigators and detectives at the Directorate of Criminal Investigations (DCI) are probing individuals whose records show they traded with 13 companies, three of which there are no records at the Registrar of Companies, while another one is registered using details of a dead person.

KRA has since publicly acknowledged existence of clandestine tax evasion rackets fleecing the government, occasioning projected tax collection shortfalls.

“A group of individuals who register several business names for fictitious invoicing perpetuate the scheme similar to the “missing trader” scheme in India and Europe.

In the scheme, fictitious invoices are generated to depict a business transaction whereas there is no actual supply or movement of goods and services.

The invoices are generated and sold at a fee by the “missing traders” to existing companies purposely for use in inflating the cost of production, thereby reducing tax payable,” KRA said in a statement in response to our queries.

According to documents under investigation seen by People Daily, a trading company based in Westlands, Nairobi, transacted business worth Sh244,141,975 with 13 companies between June, 2015 and August, 2017. However, preliminary investigations by the DCI show that the business transactions were based on suspected falsifications.

One of the companies the trading purportedly did business with was Mikita Traders which, according to the Registrar of Companies, was registered on July 3, 2015, registration number BN/2015/368634 using particulars of one Chandulal Dharamshi Shah, over two years after he had died.

No taxes were remitted. It turned out that the man believed to be the owner of the company had died in 2013, more than two years before he allegedly formed the company. DCI tax probe experts say the case of a deceased company owner is just a tip of the iceberg.

“We have come across numerous cases of companies ‘owned’ by dead people. Even after cracking the syndicate, the principal suspect cannot be taken to court because they are already in the grave, beyond reach of any law,” said a senior DCI sleuth dedicated to the tax evasion cases.

Documents currently under forensic investigations submitted by one of the directors of the Westlands-based trading company indicate that they transacted business with Mikita Traders amounting to Sh41,521,795.

Focus shifted to the trading company and investigators found out that the company was situated on the second floor of a building along Woodvale Groove in Westlands.

The directors are listed as two brothers. Investigators have established the trading company was registered on September 10, 2007 and the nature of business was indicated as “general traders and importers of spares and other items”.

Police further believe the trading company also forged a Commissioner of Oaths’ details, who allegedly drafted their Memorandum and Articles of Association.

The investigation report further shows the trading company transacted business worth hundreds of millions of shillings without remitting taxes. Police have found out transaction deals with the 13 different companies were worth Sh8,110,630, Sh38,173,346, Sh41,521,795, Sh34,366,260 and Sh33,060,330.

Others include were worth Sh33,286,955, Sh2,115,300, Sh5,050,455, Sh6,133,430, Sh8,122,404, Sh21,956,470, Sh19,987,345 and Sh 6,900,165.

Interestingly, three of the companies the trading company dealt with do not exist in the data base of the Registrar of Companies nor do they appear in the records of the Registrar of Companies.

Separately, in heightened crackdown on mega tax evaders, three weeks ago, Keval Kumar Navin Maisura was charged at the Makadara Law Courts with knowingly and deliberately failing to remit income tax returns amounting to Sh7 billion. Also, Indian national Parmar Kirit Kumar Ranchodbhai was charged a day after Keval with failing to remit Sh11.6 billion to the taxman.

Early this year, KRA was petitioned by Futa Magendo Action Network (FMAN) , a local lobby group, to dismantle an intricate web of illicit alcoholic drinks racket involved in ethanol smuggling and use of fake stamps to evade tax. FMAN told KRA Commissioner General John Njiraini that unscrupulous traders were importing illicit Ethanol through the Kenya-Tanzania border.

The chain of cartels were also said to be importing untaxed raw spirit from Tanzania, denying the tax authority billions of shillings from the sale of counterfeit drinks.

They recommended that KRA introduces use of electronic bar-code scanners to determine authenticity of tax stamps and ensure integrity of the surveillance team to curb the vice.

They also wanted the county governments through the Council of Governors to ensure compliance with tax regulations by all traders of alcoholic beverages in their respective jurisdictions. Murang’a, Kiambu and Nairobi counties have earnestly been enforcing strict compliance by traders to eliminate illicit liquor.

In 2015, President Uhuru Kenyatta ordered a countrywide crackdown on outlets selling illicit liquor, which led to the closure of 115 firms and the immediate withdrawal of operating licences for breach of statutory requirements, following recommendation of the inspection report by the Inter-Agency Taskforce on Control of Portable Spirit and Combat Illicit Brews chaired by Joseph Irungu.

The report recommended the containers in which neutral spirit is packaged for storage or transport must be marked in accordance with the provisions of Kenya Standard for Neutral Spirit KS EAS 144.

In the past two years, 99 chiefs and assistant chiefs alongside 15 police officers, including five OCPDs and OCSs, have been dismissed from service for frustrating the fight against illicit brews and second-generation liquor.

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