Kenya could continue losing billions of shillings in tax revenues through illicit financial flows due to weak implementation of laws, limited cooperation among government agencies, and letting off offenders with minimal or no penalties.
The challenge is being compounded by the emergence of cryptocurrencies, which, due to their decentralisation and anonymity, are increasingly being used by firms and individuals to move funds across borders.
A new report that looks into how foreign firms contracted to undertake public infrastructure projects have been outwitting tax authorities notes that the Kenya Revenue Authority (KRA) lacks mechanisms to track many of these companies.
The audit by the Auditor General Nancy Gathungu also found out that such firms, as well as others that engage expatriates, tend to pay them in their home countries, blocking KRA from viewing details of such payments.
“The audit found no collection system in place to pursue taxpayers beyond Kenya’s borders where taxes had not been declared and paid in full,” reads the report, released Thursday in Nairobi, in part. “This came to light during the examination of Revenue Authority assessment records on road construction payments to companies that had failed to declare and pay their correct share of taxes.” It also noted that different government agencies failed to share information, making it difficult to block illicit financial flows (IFFs). It is the case with Kenya’s Immigration Department, which maintains a register of all foreign nationals, including their activities and declared remuneration in the country. This is, however, not shared with tax authorities.
“An examination of tax returns and self-declarations by taxpayers revealed that some foreign entities operating in the country paid their employees in their countries of origin without subjecting these salaries to Kenyan tax regulations,” said the report. The audit by Kenya’s Auditor General is part of a regional project where auditors general from different countries across Africa undertook audits, with each country auditing a sector they deemed as being manipulated and used for illicit financial flows. The report was launched at a meeting of the African Organisations of Supreme Audit Institutions (Afrosai), which brings together auditor generals from the continent.
In Kenya, the office of the Auditor General focused on the management of tax exemptions on public infrastructure projects by foreign companies.
“Laws regulating and supervising sectors considered fertile ground for IFFs are inadequate,” said the Auditor General Ms Gathungu.
“These sectors include real estate agencies, money remittance providers, money network operators, savings and credit cooperatives, casinos, the legal sector, and car dealerships, as well as non-profit organisations.” Ms Gathungu said cryptocurrencies have complicated Africa’s fight against illicit financial flows and could further aggravate the losses that the continent incurs.
