The Kenya Revenue Authority (KRA) has won a Sh1 billion Value Added Tax (VAT) fraud case against the Chinese firm China Communication Construction Company Ltd.

Missing trader fraud, a scheme in which organized crime groups steal VAT from governments, was at the centre of the case.

According to a statement from KRA, investigations revealed that the Chinese company had evaded over Sh1 billion in taxes through shell companies.

“Tax fraud investigations exposed how the Chinese company fraudulently evaded payment of over Sh1 billion tax and transferred incomes through shell companies to accounts in China,” the taxman said in a statement.

The fraud came to light during an appeal filed by the Chinese firm at the Tax Appeals Tribunal (TAT), where the company sought to overturn a tax assessment of Sh1 billion. The tribunal, after hearing KRA’s submissions in a case filed on May 25, 2023, upheld the tax assessment and dismissed the appeal on August 9, 2024.

Tax Appeals Tribunal’s call

The issue began on November 3, 2023, when KRA issued VAT assessment orders and debit adjustments to the company, disallowing input VAT amounting to Sh1 billion. The Chinese firm contested these assessments and took the matter to the TAT, arguing that the audit was flawed both in fact and in law.

However, investigations uncovered that the firm had been claiming inflated input VAT for purchases that were either non-existent or unrelated to legitimate business activities. These claims were based on fictitious invoices from fraudulently registered and non-existent companies, with the intent to evade or reduce tax liabilities.

Further evidence presented to the tribunal showed that the Chinese firm claimed inflated input VAT from six fraudulently registered companies. These included Dial an Errand Ltd, Haru Limited, Njafos Holdings Ltd, Masaviru Investment Limited, Math and Kith Investment Company Limited, and Lunza Solutions Limited. These companies, which had no known physical addresses, claimed input VAT from other shell companies. These, in turn, claimed input VAT from additional shell companies such as Papaya Company Ltd, all amounting to hundreds of millions.