The Kenya Revenue Authority (KRA) has successfully won a Sh1 billion Value Added Tax (VAT) fraud case against the Chinese firm China Communication Construction Company Ltd. The case centered on missing trader fraud, a scheme where organized crime groups unlawfully reclaim VAT from governments.
According to a statement from KRA, investigations revealed that the Chinese company had evaded over Sh1 billion in taxes by utilizing shell companies.
“Tax fraud investigations uncovered how the Chinese company fraudulently avoided paying over Sh1 billion in tax and transferred income through shell companies to accounts in China,” the tax authority noted.
The fraud was brought to light during an appeal filed by the Chinese firm at the Tax Appeals Tribunal (TAT), where it sought to overturn a tax assessment of Sh1 billion. After hearing KRA’s arguments in a case filed on May 25, 2023, the tribunal upheld the tax assessment and dismissed the appeal on August 9, 2024.
The issue began on November 3, 2023, when KRA issued VAT assessment orders and debit adjustments to the company, disallowing input VAT of Sh1 billion. The Chinese firm contested these assessments, claiming that the audit was flawed in both fact and law.
However, investigations revealed that the company had been claiming inflated input VAT for purchases that were either non-existent or unrelated to legitimate business activities. These claims were based on fictitious invoices from fraudulently registered and non-existent companies, aimed at evading or reducing tax liabilities.
Further evidence presented to the tribunal indicated that the Chinese firm had claimed inflated input VAT from six fraudulently registered companies, including Dial an Errand Ltd, Haru Limited, Njafos Holdings Ltd, Masaviru Investment Limited, Math and Kith Investment Company Limited, and Lunza Solutions Limited.
These companies, lacking known physical addresses, claimed input VAT from other shell companies, which in turn claimed input VAT from additional shell companies such as Papaya Company Ltd, amounting to hundreds of millions in total.
