The Kenya Revenue Authority (KRA) announced that it uncovered a tax fraud scheme involving the use of fake electronic invoices to support fraudulent VAT claims. According to the tax authority, 42 individuals and companies face prosecution for fictitious transactions valued at about KES 33.8 billion (around USD 261 million).

Key Facts from the Investigation

Investigations revealed a network of 72 related entities that allegedly issued false invoices between 2020 and 2025 to enable businesses to make unlawful VAT claims. The entities reportedly transmitted 62,869 invoices through Kenya’s electronic Tax Invoice Management System (eTIMS), with a combined transaction value of KES 33.8 billion and associated VAT of KES 5.37 billion (around USD 41.6 million).

The KRA revealed that taxable persons who claimed to have purchased goods and services from the suspected entities declared purchases worth KES 25.07 billion (around USD 194 million), resulting in input VAT claims of approximately KES 3.9 billion (around USD 30.2 million). These claims allegedly allowed businesses to reduce their VAT liabilities by deducting tax on purchases that may never have taken place.

According to the KRA, the scheme operated through a missing trader arrangement, in which shell companies issued invoices without making genuine supplies of goods or services. Other taxable persons then used these invoices to claim input VAT deductions or refunds they were not legally entitled to.

Investigations found that several of the entities had not filed VAT or income tax returns, had no Pay As You Earn (PAYE) obligations, and could not be located at their registered business premises, despite reporting substantial turnover. The KRA stated that some companies appeared to exist primarily to generate and transmit invoices without corresponding commercial transactions.

To address the fraud, the KRA has begun disallowing input VAT claims that lack sufficient supporting evidence and recovering the resulting tax liabilities. It is also reversing fraudulent transmissions through the eTIMS and disabling devices implicated in the scheme.

Why the Investigation Matters

The investigation underscores the critical role of e-invoicing systems like eTIMS in exposing complex, large-scale tax fraud and missing trader schemes. As tax authorities enhance digital oversight and enforcement, businesses must ensure strict compliance and valid documentation for all claimed input VAT to avoid audit disallowances and legal penalties.