Identity Theft Tax Evasion Scheme Exposed in Kenya

Strategic Insights -

Multiple innocent Kenyans, including domestic workers, have fallen victim to a complex tax evasion scam in which their identities are used to open shell companies that facilitate money laundering and non-payment of taxes. The Kenya Revenue Authority (KRA) has launched an investigation into the scheme, dubbed the identity theft tax evasion scam, which involves unsuspecting individuals being made directors or owners of companies without their knowledge. Perpetrators use the victims' ID and PINs to open companies that are then used for tax fraud, including fictitious Value Added Tax (VAT) returns. The victims are later pursued for tax liabilities or fraud they are unaware of, sometimes even arrested or jailed.

Key Takeaways:

  • The KRA has unearthed at least four cases of identity theft tax evasion scheme, with several court filings revealing the use of individuals' ID and PINs to open companies for tax fraud.
  • Joy Catherine Gashengu, a trader in Mombasa, imported second-hand clothes worth Sh349,481,658 using her domestic worker's KRA PIN, resulting in a tax liability of Sh68,078,367.
  • Another young woman, whose identity has been concealed for privacy reasons, was arrested and handed over to the KRA's enforcement officials after being frozen from boarding an international flight at the Jomo Kenyatta International Airport (JKIA) in Nairobi.
  • The woman was shocked to find out that she was the director of a company with a turnover and unpaid taxes worth millions of shillings, despite having no knowledge of the company's existence or ownership.
  • A separate KRA audit revealed hundreds of firms created fake transactions to milk the system by seeking VAT on goods and services without any physical trade.
  • The audit also revealed that some companies charged VAT on goods and services and disappeared without remitting the 16 percent consumption tax to the taxman.

Sources:

  • Court filings
  • Kenya Revenue Authority (KRA)

Statistics:

  • At least four cases of identity theft tax evasion scheme have been uncovered by the KRA.
  • Joy Catherine Gashengu imported second-hand clothes worth Sh349,481,658 using her domestic worker's KRA PIN.
  • The tax liability resulting from Gashengu's actions is Sh68,078,367.
  • The young woman, whose identity has been concealed, had a company with a turnover and unpaid taxes worth millions of shillings.
  • 261 firms created fake transactions to milk the system by seeking VAT on goods and services without any physical trade (KRA audit).