Auditor general queries KRA’s Sh18b duty stamp tender

Auditor General Edward Ouko. [Photo: Courtesy]

Pressure is piling on the government to probe the controversial Sh18 billion duty stamps tender awarded to a Swiss firm by the Kenya Revenue Authority.

The auditor general Edward Ouko questioned the single sourcing tendency applied by the Kenya Revenue Authority in awarding the Swiss Company SICPA Security Solutions SA Limited the Sh17.7 billion tender.

“The procurement of printing, supply and delivery of security revenue stamps complete with track and trace and integrated production accounting system from SICPA Security Solutions SA was single sourced without justification,” said the Auditor General Edward Ouko in his report.

In the report, Ouko further stated: “This is contrary to the public procurement and disposal Act 2015 and the authority may not have received value for money on that contract.

This comes as Kenya Revenue Authority this week suspended implementation of new system which would see soft drinks, beauty products attract new taxes.

This is after Parliament scuttled the plan as it had not sought a go ahead from the August house.

“If something that has the force of law is being implemented before passing through this house, then it is null and void,” said National Assembly Speaker Justin Muturi Speaker, who added that the regulations by KRA should have been tabled before the house 7 days after gazettement and adopted by members.

Meanwhile, manufacturers want KRA to consider factoring in the cost of Excisable Goods Management System, e-tax service, on tax collections.

The Kenya Association of Manufactures (KAM) says the planned new system will see operational costs climb exponentially.

At the same time, another duel between activist Okiya Omtatah, the Swiss firm, Treasury CS Henry Rotich and KRA is simmering before the Supreme Court.

Activist Omtatah moved to the Supreme Court in a bid to block KRA from implementing the controversial taxes.

This is after the Court of Appeal temporarily lifted High Court orders which found the taxes were illegally gazetted.

In his ruling delivered in March, High Court Judge John Mativo said the direct procurement method, which had been adopted by KRA “restricted the scope of the principle of competitiveness.”

SICPA had initially signed the contract in December 2012 at a cost that was later renegotiated and increased. The five-year contract worth 20,341,464 euros (approximately Sh4.8 billion) was originally to provide 3.55 billion stamps a year but this was later increased to 158,213,898 euros (Sh17.7 billion at current exchange rates) for 12.87 billion stamps.

The original contract was for making excise stamps for tobacco products, wines, and spirits but the Treasury, through legal notice number 110 of June 2013 increased the scope to cover beer, bottled water, and soft drinks

The e-tax system affixes a stamp that can be used to track each bottle coming off the production line. KRA intends to roll out a new tax that would require manufacturers and importers to affix the new generation excise stamps on bottled water energy drinks, food supplements and cosmetics from November 1.

Concerns were also raised over extension of the SICPA contract when more than Sh600 million had been lost in uncollected tax revenue as a result of fake stamps flooding the market.

There were also been claims that the contract was signed two years before the firm was incorporated, with mounting calls for investigations into alleged violation of procurement laws.

However, Omtatah moved to court terming the move unconstitutional as it was carried out without public participation.

Justice Mativo revoked a legal notice by the Treasury Cabinet Secretary, meaning the Government would not collect the Sh20 billion it anticipated from these products.

Omtatah told the court that KRA was expected to collect Sh0.5 above the current cost of non-alcoholic beverages

At the same he argued that government was supposed to provide clean water instead of taxing what was on the shelves.

The judge was told that the deal on EGMS was surrounded with illegality as neither the Parliament or the Treasury were consulted before procuring the same.

He said the Treasury’s push was unlawful, citing lack of public participation in levying the new taxes and irregularly awarding a tender for the EGMS.

But in defence, Rotich told the court he had invited the Kenya Association of Manufactures to air their views on the levies. He produced in court only a list of those who attended the meetings but did not have minutes of what was discussed.

Justice Mativo agreed with the activist saying that the system was set up using illegal law hence it was equally illegal.

“Tax inherently infringes the right to property, being an expropriation of one’s heard earned money,” the judge ruled. “It follows that for a tax to be lawful, the law introducing it must also be lawful but also meet the analysis test of being justifiable and reasonable in an open and democratic society.