KRA raises alarm over Sh30b lost to tax evasion

The Government has lost over Sh30 billion in tax revenues to multinational corporations, which are shifting billions of dollars between jurisdictions to reduce or even to completely avoid their tax obligations.

The Kenya Revenue Authority (KRA) yesterday revealed that the amount in question follows a series of audits of the multinational companies operating in Kenya.

The audits which begun in 2010 shows how foreign companies manipulate their books to ensure no profit accrues to their Kenyan subsidiaries in a bid to reduce or even dodge their tax bills.

“Transfer pricing is a big issue not only in Kenya but worldwide. It is a big issue for every country. I don’t think it is a small issue,” Patrick Chege, a manager in-charge of the Transfer Pricing Unit at KRA told reporters in Nairobi yesterday. Mr Chege disclosed that some multinationals have been operating in the country for three decades without paying taxes to the Government.

“From the audits we have done there is Sh30 billion in transfer mispricing alone and what is out there is still unknown because we don’t have the data,” he said adding that efforts are being made to recover the money.

Chege said some of the offenders have agreed to pay their share of taxes while others have either gone to court or to the tribunal but they have all lost the cases. “We have collected quite a substantial amount in this area,” he said. It is estimated that about 60 per cent of international trade happens within, rather than between multinationals, implying that trade occurs across national boundaries but within the same corporate group. Estimates vary as to how much tax revenue is lost by governments due to transfer mispricing. 

Global economy

But according to a report by Christian Aid (March 2009) tax dodging has a great impact on the global economy with poor countries in particular being deprived of badly needed tax revenues estimated to be about $160 billion a year. According to the report, cooking of company books is not restricted to multinationals. There are a multitude of ways that a subsidiary in one country can charge a vastly reduced rate for goods or services to another subsidiary based elsewhere to minimise their tax liability. The process is known as ‘transfer mispricing’.

While effecting this scam, multinationals export goods and commodities at knockdown prices from the country where they are produced to depress pro?ts arti?cially and dodge tax.