A tax evasion cartel involving vehicle-tracking service providers, clearing agents and transporters has been denying the Kenya Revenue Authority (KRA) billions of shillings through dumping of cargo meant for export.
Documents seen by the Sunday Nation show that last year alone, the cartel denied the KRA close to Sh2 billion by deactivating the tracking devices of the lorries ferrying transit cargo before they crossed the borders and offloading the goods into the local market.
KRA had authorised some eight cargo tracking service providers, including multinationals, to monitor the goods meant for markets like Uganda, Rwanda and Burundi but noticed, through surveillance, that most of the cargo never crossed the borders.
An audit conducted late last year with just three products - petroleum products, milk and alcohol - in focus led to the busting of the scheme that may have caused much more revenue losses, considering the wide range of products the landlocked East African countries import through Kenya.
KRA has since narrowed down to the six vehicle tracking services' providers, who it is investigating.
The six firms also face removal from KRA's authorised list of tracking agents if found culpable.
"Following reconciliation on transit consignments of milk, petroleum and alcohol destined to Non-Single Customs Territory (SCT) countries from Mombasa between 2018 and 2019, it has been established that there is no evidence that the seals disarmed by yourselves and conveying the said products were received at the Busia/Malaba border.
The consignments' tax liability is Sh757,649,612. You are therefore called upon to account for your actions within seven days and aid in handing over all the listed trucks to ICD Kisumu, or have enforcement action taken against you without further reference to yourselves," states a KRA letter to one of the tracking companies.
Similar letters detailing amounts in question, all totalling Sh1.907 billion, have been sent to the other five companies.
KRA is also seeking to detain 1,200 trucks alleged to have been involved in the tax evasion racket, with some having been impounded in Kisumu and Eldoret last week.
The more than 200 trucks loaded with export fuel destined for Uganda, Rwanda, Burundi, South Sudan and parts of the Democratic Republic of Congo are being held at the Eldoret and Kisumu fuel depots after KRA issued letters to the transportation companies demanding taxes amounting to $7.2 million (Sh757.6 million) -- all linked to the dumping allegations.
The tax agency has licensed about 17,000 trucks in the cargo transit business, meaning the grounding of the 1,200 may not cause a significant hitch in the transit cargo business.
The audit also revealed that Luanda, which is just 30 kilometres from Kisumu and Eldoret, was the main dumping hotspot.
It is from here that the trucks went off the radar before emptying the cargo and being entered as having been exported, effectively evading custom duty.
A senior KRA official who sought anonymity told the Sunday Nation that 54 clearing agents had already been suspended as the investigation continues into the tax evasion syndicate.
The agents are said to be the pivot points in the tax evasion plan, linking the cargo owners with the transporters and selling the idea of deactivating the tracking devices to execute the dumping.
"The tracking firms charge about Sh200,000 to register for the services plus an annual fees of about Sh40,000," said the KRA official.
"When we tried to introduce free tracking of the lorries, there was stiff opposition. Now we can tell just how much they were making after we entrusted third-party firms to monitor the transit cargo."
The insider also said the tracking firms have also been behind the opposition to KRA's push to instal and monitor tracking of cargo destined across the borders and have been sponsoring legal injunctions any time they are faced with that possibility.
KRA last week notified importers, transporters, customs agents and players in the export business that all cargo will now be tracked under the Regional Electronic Cargo Tracking System (RECTS) Seals, monitored from the Times Tower.
"All petroleum and ethanol tankers conveying transit and SCT cargo must be fitted with a RECTS Efuel by June 30, 2020. This is a free service under the KRA RECTS initiative. Efuel installation will be scheduled on first come, first served basis," KRA said in the notice.
The East African countries source over 10 million tonnes of cargo through Kenya, with Uganda being the predominant transit destination from the Mombasa Port, commanding a transit traffic of more than seven million tonnes every year, according to data from the Kenya Ports Authority (KPA).
The cartel now threatens KRA's revenue collection targets at a time when the country is already struggling with depressed incomes and a widening budget deficit.
The country is also believed to be losing over Sh70 billion in customs duty annually due to misinvoicing, a fraud involving cross-border trade, rampant in the trade of footwear, vehicles, medical products and electrical machinery, according to a US-based illicit financial flows think tank, Global Financial Integrity (GFI).