Treasury seeks 3-year jail term for false VAT claims

The Kenya Revenue Authority headquarters in Nairobi. The Treasury now wants those found guilty of filing false VAT claims to be jailed. FILE 

By EDWIN MUTAI and GEOFFREY IRUNGU

In Summary

• Traders making false value added tax (VAT) claims will spend up to three years in jail.
• Tax cheats also face hefty fines of up to double the amount falsely claimed if found guilty.
• Claimants who fail to keep, retain or maintain accounts, documents or records as required under the law are also liable for fines.

Traders making false value added tax (VAT) claims will spend up to three years in jail or pay back two times the amount claimed if Parliament passes a new set of proposed laws.

The Bill, which goes to the House this week, is seeking to establish a Tax Appeals Tribunal to deal with rampant fraudulent claims that have partly contributed to the recent rise in stock of unpaid refunds from Sh27 billion to Sh30 billion.

“A person who knowingly makes false claim for refund commits an offence and shall be liable, on conviction, to a fine not exceeding Sh400,000 or double the tax evaded, whichever is higher, or to imprisonment for a period not exceeding three years or both,” the Tax Appeals Tribunal Bill 2013 says.

The law seeks to place the burden of proof on claimants unlike the current law that forces the Kenya Revenue Authority (KRA) to conduct lengthy verifications on doubtful refund claims.

“The proposed law should help us address the issue of tax refunds that now stand at about Sh30 billion,” said John Njiraini, the KRA commissioner-general. “Each year, we accumulate about Sh15 billion in claims.”

KRA has in the past said fraudulent claims are part of the reason it takes long to pay the refunds.

The Bill, published by the Finance, Trade and Planning Committee chaired by Benjamin Langat, the Ainamoi MP, is in line with the proposals that Treasury secretary Henry Rotich announced in the 2013/14 budget.

To deal with the refund cheats, the Tax Appeals Tribunal Bill proposes that those who pass as registered persons or have ceased to be registered but are charging VAT will forfeit the supplies for which the tax is charged or be penalised for the value of supplies as assessed by the court.

Claimants who fail to keep, retain or maintain accounts, documents or records as required under the law are also liable for fines.

The Bill further proposes that those contesting the taxman’s assessment of their tax obligations will bear the burden of proof. The proposed appeals tribunal that will comprise a minimum of 15 and a maximum of 20 members has power to enforce orders for costs.

Dissatisfied appellants, however, have a window to appeal to the High Court against the verdict of the tribunal or its committees within 30 days.

The new Bill goes to Parliament barely three weeks after the new Value Added Tax Act 2013 took effect on September 2, reducing the number of zero-rated or tax-exempt items from about 400 to 27.

(READ: New VAT law set to reduce refund claims by Sh600m)

The coming into force of the new VAT law has, however, caused a steep rise in the cost of basic consumer goods, forcing MPs to propose amendments
.

Speaker Justin Muturi who received the VAT Amendment Bill sponsored by the minority Coalition for Reforms and Democracy (Cord) has to approve the Bill for publication before it is tabled for debate.