Kenya: Tax Appeal Tribunal Rules in Favor of Revenue Authority in KES 1 Billion VAT Fraud Case

An interesting case following a tax fraud investigation ended with the Tax Appeal Tribunal (TAT) in Kenya making its final decision. The Kenya Revenue Agency (KRA) published the details of this KES 10 billion (around EUR 7 million) case, as it won a legal battle with the Chinese company China Communications Construction Company Ltd (C Ltd).

VAT Fraud Case Details

The KRA's investigation, conducted in 2023, concluded that C Ltd, which offers design, construction, and operation of infrastructure assets, including highways, bridges, tunnels, railways, roads, airports, marine ports, and oil platforms services, committed VAT fraud through a so-called missing trader scheme. 

C Ltd. disagreed with the conclusion and submitted an appeal to the TAT, claiming that the facts were incorrect and that the decision was inconsistent with applicable law.

KRA determined, and the TAT confirmed, that numerous shell companies were included in this complex VAT fraud scheme. C Ltd. claimed input VAT on transactions with six shell companies related to goods and services that those six companies never supplied. Furthermore, several other shell companies issued fictitious invoices to the six companies, who also made fraudulent input VAT claims worth millions. 

Besides issuing false invoices, bank details from C Ltd. and shell companies showed that funds transferred from one company to another would immediately be transferred to their USD accounts and further wired to other overseas accounts, including those in China.

This shows how elaborate this scheme was and how much effort was put into hiding these entities' financial details and mutual transactions.

Conclusion

The TAT stated that it is doubtful that all these linked companies had the same business model and did not have proper documentation concerning the transactions.

In its decision, the TAT stated that the KRA, unlike C Ltd., managed to provide evidence that led to the conclusion that none of the companies that issued invoices to C Ltd. performed any actual commercial activity and that they were all established to construct a VAT evasion scheme, thus damaging Kenya's budget.

Source: ENSafrica, Kenya Revenue Authority