Home Breaking Bar Owner Lifts the Lid on KRA-Enabled Tax Evasion Schemes –

Bar Owner Lifts the Lid on KRA-Enabled Tax Evasion Schemes –

The Kenya Revenue Authority (KRA) is losing over Ksh8 billion every month to rogue businessmen in the alcohol and beverages industry, a new dossier has shown.

According to a suit filed by a bar owner, Mr Justus Mombis, most of the money is lost through the sale of 250-millilitre spirits, which are suspected to be manufactured, distributed and sold illegally.

The ‘businessmen’ operate under a network of cartels distributed across the country, under the protection of senior KRA officials and a few policemen.

The government officials led by KRA head of Market Intelligence Anne Irungu are said to collect at least Ksh200 million monthly from the tax evaders, denying the taxman at least Ksh8 billion every month.

The evasion is enabled through the sale of fake revenue stamps and importation of bottles through a network of a cartel.

In the suit where the National Treasury, the CS Treasury Ukur Yattani and the auditor general are listed as respondents, Mr Mombis wants the court to compel the auditor general to conduct an audit on all alcohol manufacturers and the Excisable Goods Management Systems (EGMS) system in the factories.

“There has been massive losses of revenue due to the government whereas the bodies mandated to seal the loopholes through which tax cheats evade payment of taxes have failed to act, thereby resulting to constitutional violations and more particularly consumer rights and discrimination,” he said.

He says the 250-millilitre alcohol takes up 80 per cent of the market share, retailing at Ksh150 and below which makes it not tax compliant.

Mr Mombis wants KRA compelled to provide a list of licensed manufacturers of alcoholic wines and spirits as of November 2020, which are installed with SICPA Security Solutions SA Limited’s EGMS system.

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Also on the list of demands is the latest list of all the officers deployed by SICPA Security Solutions SA Limited stationed at the specific manufacturing plants and their mobile numbers and a list of the resident excise officers stationed at each production facility of the licensed manufacturers of alcoholic spirits manufacturers.

The petitioner also wants the court and the auditor general furnished with the manufacturer’s cost of each brand of all the licensed manufacturers packaged in 250-millilitre bottles.

Mr Mombis says KRA published a list of licensed manufacturers and registered importers of alcoholic spirits on December 31, 2018, and the list has never been updated.

According to a marketing intelligence report in our possession, since 2017, more than 30 companies have suspiciously been given licenses to operate bottling units for alcoholic beverages for human consumption with little or no oversight on health regulations, unison compliance, KEBS clearance and a total disregard to the Kenya Intellectual Property Institution (KIPI) trademark guidelines.

“KRA market surveillance was supplied with highly specialized machines from SICPA for identification of counterfeit produce after Soma Label had failed The said device has now been tampered with to give leeway for the illegitimate players. The SICPA machine was only supplied to the KRA Market Surveillance team and not the industry players,” says the report, which could form a basis of the argument in the case.

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According to the report, the tax cheats buy bottles locally through cash consideration. When the local supply is scarce or to eradicate a chain link of being exposed, they fall back to import bottles through own companies operated by the scrupulous manufacturers. The imports, mostly from Oman and Tanzania are declared as glassware raw material inputs for pharmaceuticals and a variety of healthcare products.

Some of the companies used in the importation of the bottles from Oman and Tanzania are Josinta Villa Limited, Amplified Consultants and Frank Man General.

Caps are bought from local manufacturers through shell companies or are imported into the country with mismatching custom entries. If there are difficulties with importing caps, they are locally procured from Torrent Closures and Guala Closures, the report indicates.

It is alleged that local manufacturers of labels under-declare the number of labels manufactured and sold to manufacturers by selling for products at double the price supplying the equivalent amount declaring half the amount supplied.

It is reported that some raw materials are smuggled from Tanzania through unmanned routes. In case of a shortage from the regional market, the materials are imported from India, Mauritius, South Africa and Pakistan and declared as Industrial Impure Spirit.

Read: Police Officers Caught on Camera Stealing Alcohol from City Bar

The market intelligence report further reveals that there are three unidentified locally based entities within the Nairobi area that have imported sophisticated printing press machines to manufacture counterfeit security printing.

The said entities have an iron grip hold on the illegal sales of alcoholic beverages, cigarettes, soft drinks, juices and bottled water. It is said that they have the bandwidth to diversify into the manufacturing of counterfeit currencies on an industrial scale.

The process involves purchasing significant quantities of KRA stamps through illegitimate manufacturers, who supply the legitimate stamps to the printing presses who then carefully replicate the same with fine detail.

The quality control measure for these illegitimate stamps is conducted by rogue KRA officials with an approved tool from SICPA like Soma Lable. Also, rogue ex-SICPA staff and KRA officials have colluded with precision to leak critical intelligence on security specifications to illegitimate manufacturers.

Read: Three Arrested As Uncustomed Alcoholic Drinks Worth Millions Of Shillings Seized In Kitui

“The advanced technology provided exclusively to KRA Market Surveillance to identify counterfeit stamps has been downgraded to accommodate the illegitimate stamps. A Ratio of 30 legitimate to 70 counterfeit stamps on goods supplied in the market is maintained,” adds the report.

Kahawa Tungu understands that huge amounts of bribes in the hundreds of millions are distributed to officials within the key departments like KRA Market surveillance, KRA enforcement officers, DPP Officers, junior judiciary staff, DCI officers and National Intelligence Service.

In the event of Illegitimate goods which have been nabbed, senior DCI officers call for the goods to be transferred to a designated government safe warehouse. The same is then “stolen” and junior DPP officers then collude to withdraw the case for “lack of evidence”.

In a letter dated March 8, 2021 by the Consumer Federation of Kenya (Cofek) to KRA commissioner-general James Githii Mburu, it was noted that 90 percent of 250 mililitre alcohol bore fake stamps.

In case of genuine stamps, the proceeds from the same are diverted to private pockets. At least 36 brands were identified to fall in these categories.

“In order to evade law enforcers, most manufacturers of such alcoholic beverages change the brand names frequently. Interestingly, unconfirmed reports, indicate that even established and compliant manufacturers are tempted to enjoy a cake of the lucrative black market business by stealthily engaging in the malpractice,” noted Cofek.

The alcohol is sold in nearly all informal settlements in Nairobi County, in the Central Kenya region like Embu, Meru, Nanyuki, Nyeri and Muranglai. Other places include Kiambu County, Nakuru County, Narok County, Machakos County, Kitui, areas along Mombasa Road.

In Western and Nyanza regions, areas affected include Kisumu County’s Stage Bay, Kericho and Oyugis, Kondele and Nyalenda. Other areas include Busia, Serem, Siaya, Kakamega, Kendu Bay, Kericho and Oyugis.

The illegal alcohol has also been on sale along the Kenya-Uganda border.

In the financial year ended June 2020, several companies including Platinum Distillers Ltd and Two Cousins Distillers Ltd were found to have underdeclared their produced volumes and stamp usages.

Africa Spirits Ltd was found to have unaccounted stamps.

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