These tax evaders must be reined in

Kenya Revenue Authority commissioner- general John Njiraini during a previous Press briefing. He called on landlords to pay tax on rental income before June 2016. PHOTO | DIANA NGILA 

In Summary

• A report published in Tuesday’s edition of this newspaper demonstrates how some multinationals have devised a system through which they falsely account for the compensation of their expatriate staff to avoid paying taxes.
• At one point this year, the Kenya Revenue Authority spotlighted 40 multinationals for tax audit, when it emerged that although some were doing big businesses and thriving, they declared low profits not commensurate with their revenue and expenditure.

By EDITORIAL
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Information is emerging about the tricks that some multinational companies use to evade taxation.

A report published in Tuesday’s edition of this newspaper demonstrates how some multinationals have devised a system through which they falsely account for the compensation of their expatriate staff to avoid paying taxes.

Given that so many international organisations operate in Kenya, the losses could be massive.

At one point this year, the Kenya Revenue Authority spotlighted 40 multinationals for tax audit, when it emerged that although some were doing big businesses and thriving, they declared low profits not commensurate with their revenue and expenditure.

A common practice has been an accounting system known as transfer pricing where multinationals set the price for buying and selling goods and services among their subsidiaries.

However, this simply masks actual costs and makes it difficult for tax collectors to calculate the appropriate tax due.

Due to tax evasion, the KRA has been hard pressed to meet its targets. Last year, it marginally surpassed the target by a decimal point, raising Sh963.8 billion against a budget of Sh963.7 billion. But that was after the National Treasury scaled down the target by Sh10 billion.

Some independent assessors have estimated that Kenya loses upwards of Sh600 billion a year through tax evasion. Since the government depends on tax to finance its budget, failing to meet targets means borrowing.

In the current financial year, the government estimates to collect some Sh1.3 trillion in taxes against a budget of Sh2.1 trillion. With tax evasion and a sluggish economy, meeting that target may be difficult and that may widen the budget deficit.

The KRA must tighten its systems, cast the net wider, and rein in tax evaders