The Kenya Revenue Authority (KRA) has won a value-added tax (VAT) fraud case against a Chinese firm, China Communications Construction Company Limited.

According to KRA, the company evaded taxes by wiring incomes through shell companies to accounts in China in a fraud commonly known as ‘the missing trader’ tax evasion scheme.

The scheme was demonstrated in an appeal filed by China Communications Construction Company Limited at the Tax Appeals Tribunal (TAT) while seeking to have a tax assessment of Kes 1.05 billion set aside.

The firm  engages in the design, construction, and operation of infrastructure assets, including highways, bridges, tunnels, railways, roads, airports, marine ports, and oil platforms.

After hearing the KRA submissions of the case filed on May 25, 2023, and in which the Commissioner for Investigations & Enforcement was the respondent, the TAT upheld the assessment and dismissed the appeal last Friday.

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KRA investigations conducted an audit on the company’s affairs and issued it with an assessment on February 3, 2023, for VAT and income tax.

However, the company objected to the KRA’s assessment and moved to the TAT, claiming that the audit was erroneous in fact and in law.

As per KRA’s assessment, the firm was involved in a complex tax evasion scheme that entailed claiming inflated input VAT for purchases that had not been incurred or were not related to genuine business activities using fictitious invoices obtained from both fraudulently registered and non-existent companies to avoid or reduce tax liabilities.

In this case, the TAT was shown as China Communications Construction Company Ltd claimed input VAT of purchases of goods and services that were never supplied.

Detailed evidence showed that the Chinese firm claimed inflated input VAT from six fraudulently registered companies whose directors, as indicated in the company profiles, were not aware of the existence of such companies as well as purchases and financial transactions.

The six companies are Dial an Errand Ltd (Kes 638.23 million), Haru Limited (Kes 156.53 million), Njafos Holdings Ltd (Kes 256.93 million), and Masaviru Investment Limited (Kes 157.035 million).

Others are Math and Kith Investment Company Limited (Kes 213.45 million), and Lunza Solutions Limited (Kes 221.06 million).

The above six shell companies (tier 2), with no known physical addresses and locations, would in turn claim input VAT of various amounts in hundreds of millions each from other shell companies (tier 3) identified as Benlaz Company Ltd, Hao Yuan International Company Limited, Colila Ltd, Crystal Touch Company Ltd, Akubi Ltd, Homematt Ltd, and Ujenzi Suppliers Ltd.

These tier 3 companies would also claim input VAT from two other shell companies (tier 4), such as Papaya Company Ltd, in hundreds of millions.