Times Tower, KRA headquarters.
Senators are demanding investigations into the existence of a tax evasion ring at the Kenya Revenue Authority (KRA) following cases of loss of more than nine million revenue stamps.
The development comes after Auditor-General Nancy Gathungu last month raised the red flag on the possible theft of 9,686,358 excise stamps from the taxman, sparking concerns about tax evasion and the potential flooding of counterfeit goods into the market.
Ms Gathungu said the stamps disappeared from KRA's custody, raising fear that they might have landed in the hands of a tax cheat or an illicit trader.
This comes at a time when Kenya’s manufacturing sector has been hard hit by an influx of cheap counterfeit products.
Consequently, the Finance and Budget committee has now been tasked by the Senate to commence investigations into unaccounted for excise stamps, a mark of quality assurance, an issue that has been a long-standing concern.
Alarming incidents
Raising the alarm, nominated Senator Miraj Abdillahi said the alleged theft of revenue stamps at KRA is not an isolated case, calling for investigations into the possible existence of a tax evasion ring that may have infiltrated KRA system putting into jeopardy government’s tax collection measures.
She argued that the alarming incident has put the spotlight on issues like consumer safety, public health risk, tax evasion, and market integrity raising urgent concerns about proliferation of counterfeit goods.
An excise stamp is a type of revenue marker affixed to some excisable goods to indicate that the required duty has been paid by the manufacturer.
The lawmaker pointed out that counterfeit duty stamps allow illicit trade to flourish affecting not only the economy but also the wellbeing of Kenyans.
“We want the committee to tell us the action that will be taken against the masterminds of the heist as well as any strategies to guard against repeats of a similar occurrence in future,” said Ms Abdillahi.
“The committee should also outline any measures by KRA to mitigate infiltration of its systems that are prone to sabotage resulting in flooding the Kenyan market with counterfeit goods that have adverse health risks to Kenyans,” she added.
Nominated Senator Hamida Kibwana said they are keen to know if the taxman has put in place any firewalls against any tax cheats.
Tax evaders
Excise stamps are crucial for confirming tax compliance on excisable goods like alcohol, cigarettes, soft drinks, and cosmetics.
The use of counterfeit excise stamps on excisable products has been identified as part of various tax evasion schemes employed by unscrupulous traders.
Between 2016 and 2021, KRA estimated revenue lost from tax evasion in the sector to be approximately Sh70.3 billion, denying the country the much-needed revenue for financing national economic development programmes.
In 2021, KRA rolled out a new generation of excise stamps for excisable goods as part of its strategy to deter counterfeiting.
The new generation stamps have enhanced security features leveraging on technology which are meant to discourage forging.
This is after it emerged that the markers it had acquired since 2003 were prone to counterfeiting.
Nonetheless, the taxman has continued to arrest unscrupulous traders engaging in the use of fake excise stamps.
The excise sector accounts for 6.6 percent of ordinary revenue collections in value-added tax, excise and other taxes with KRA collecting Sh276.7 billion in the financial year ended June 2024.
Tax targets
The taxman collects an annual average of at least Sh60 billion in domestic excise tax with excise tax collection hitting Sh73.6 billion in the fiscal year ended June 2024.
Kenya has struggled to fight illicit goods to help local manufacturers, with the goods involved ranging from sugar to cigarettes accounting for 40 percent of all traded goods in the country.
Some of the illicit goods are imports supposedly intended for transit to a neighbouring country, then diverted to the local market with no import fees paid.
