Swiss firm faces MPs over KRA tax deal

Public Investment Committee (PIC) chairman Adan Keynan. PHOTO | FILE 

By EDWIN MUTAI, emutai@ke.nationmedia.com

In Summary

• The Public Investment Committee (PIC) is investigating how KRA awarded SICPA the Sh17.7 billion e-tax job through single sourcing.
• PIC is also probing a clause in the tender documents that requires manufacturers of excisable goods to pay SICPA Sh1.50 for every stamp attached to each item – earning the Swiss firm billions of shillings annually. 

A Swiss firm that won a Sh17 billion contract to supply e-tax stamps for excisable goods in Kenya on Tuesday told Parliament that it is willing to review any breach of legal requirements during award of the tender. 

Bruno Frentzel, the SICPA Solutions SA director, told the National Assembly’s Public Investment Committee (PIC) that his company was unaware that the legal instruments the Kenya Revenue Authority (KRA) and the Treasury used to float the Excisable Goods Management System (EGMS) tender were not approved by Parliament, making the entire process a nullity.

“I am ready to sit with Kenya Revenue Authority to understand the legal requirements and the process leading to the signing of the contract. If indeed the legal mechanisms were flawed, I will take the necessary action as set out in the contract documents. This may include a legal process or mediation,” he told the committee chaired by Eldas MP Adan Keynan.

Mr Bruno denied MPs’ claim that SICPA used unethical business conduct, including corrupting tax agencies to win lucrative contracts around the world.

PIC is investigating how KRA awarded SICPA the Sh17.7 billion e-tax job through single sourcing and a clause in the tender documents that requires manufacturers of excisable goods to pay SICPA Sh1.50 for every stamp attached to each item – earning the Swiss firm billions of shillings annually. 

The taxman had initially targeted large consumers such as supermarkets and hotel chains for enforcement of EGMS before the law was amended to transfer the burden to manufacturers and importers of excisable goods.

READ: Njiraini on the spot over Sh17.7bn tax tender award

The Treasury and KRA in 2013 expanded the law that was initially intended to produce excise stamps for tobacco products, wines and spirits to include beer, bottled water and soft drinks through Legal Notice Number 110 of June, 2013.

The notice saw SICPA’s contract price rise to Euros 158,213,898 (Sh17.7 billion at current exchange rates) for supply of 12.87 billion stamps.

KRA and SICPA Solutions SA originally signed the e-tax contract in December 2012 at a cost that was later renegotiated.

The contract was worth Euros 20,341,464 (approximately Sh4.8 billion) for the supply of 3.55 billion stamps a year.

On Tuesday, the committee sought to know what SICPA would do if it finds out that Treasury secretary Henry Rotich’s Legal Notice number 110 of June 2013 and another one Number 12856 of September 2015 signed by KRA commissioner John Njiraini are null and void because they were not tabled in Parliament for approval, pursuant to the provisions of the Statutory Instruments Act, 2013.

The Act requires parliamentary scrutiny of statutory instruments including any rule, order, regulation, direction, form, tariff of costs or fees…by law, regulation, guideline or other statutory instrument issued, made or established in execution of a power conferred by or under an Act of Parliament.

The Act in Section 11(1) provides that every Cabinet secretary responsible for regulation making authority shall within seven sitting days after publication of a statutory instrument ensure that a copy of the same is transmitted to Parliament for tabling.

“Legal Notice No 110 of June 18, 2013 by the Cabinet secretary (Henry Rotich) and the Gazette Notice No 12856 dated September 5, 2013 by commissioner- general (John Njiraini), which set the prescribed fee for an excisable stamp at Sh1.50, were all required to adhere to the provisions of the Statutory Instrument Act, 2013,” Mr Keynan told representatives of SICPA SA and SICPA Kenya when they appeared before the committee

Mr Keynan said Legal Notice No 110 and Gazette Notice No 12856 were null and void having not been submitted to Parliament as required by the Statutory Instruments Act, 2013.

“Subsequently, the Gazette Notice No 12856 dated September 5, 2013 which was based on the Legal Notice No 110 have no force in law and could therefore not be relied upon to enforce the EGMS stamp solutions,” he said.

PIC resolved to summon Mr Rotich and Mr Njiraini to explain why they circumvented the House and the Statutory Instrument Act while processing the tender.

The Kenya Bureau of Standards Management, which rejected SICPA’s bid for the provision of standards stamps, the Public Procurement Review Board, which threw out SICPA’s appeal against Kebs tender, De La Rue Kenya Limited and Madras of India, which lost the tender war to SICPA, are expected to appear before the committee.

Mr Bruno and SICPA Kenya Limited managing director Michele Castegnaro defended the deal, arguing that the Swiss firm competitively won the international tender.

“We won a competitive international tender and we were awarded the same based on our technical and financial capacity,” Mr Bruno said when asked to respond to claims that his company is involved in an international corruption ring that covers Brazil, Albania, Morocco and the Philippines.

“By definition, there are certain parties who resist the application of the system powered by SICPA technologies. This opposition may express itself in various ways, including in vexatious action and unfounded libelous allegations,” he said, adding that SICPA has never been convicted of any offence relating to unethical actions.

Mr Bruno was, however, hard put to explain why his firm is under probe in Brazil where a former Finance minister is being investigated alongside former President Dilma Ruosseff.

“I know that my subsidiary alongside 200 companies are under investigations ,but I do not know what they are looking for. I don’t live in Brazil,” he told MPs.

PIC vice chairman Kimani Ichung’wa had sought to know why SICPA was being investigated in Brazil and why the company’s services were rejected in Alabama USA.