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Thousands of security guards are being fleeced millions of shillings every month by their employers through under-declaration of their income.

Sources told People Daily that despite the security firms charging their clients as much as Sh50,000 per guard, they end up paying the guards between Sh6,000 and Sh10,000 in monthly salary.

Major private security companies are on the spot over tax evasion, denying the government Sh14.6 billion in the last eight years, according to the Kenya Revenue Authority (KRA).

KRA’s Intelligence and Strategic Operations Department, in various reports between 2021 and May last year, accused the firms of tax evasion through under declaration or non-declaration of income, tax fraud, dishonest tax reporting, understating the number of employees and overstating deductions.

The revelations come at a time private security firms are embroiled in a tiff with the Private Security Regulatory Authority over the improvement of working conditions for security guards.

KPRSA chief executive Mahamud Fazul has laid down new regulations, among them a minimum monthly salary of between Sh27,000 and Sh30,000, that the firms must implement.

Fazul has insisted only private security firms that meet the regulations would be allowed to operate.

According to the reports, for example, a comparison of actual payroll records obtained from the companies against PAYE self-assessment returns declared on iTax showed that a huge variance between the actual number of employees on the payroll and those declared on the iTax return, that is, the PAYE remitted for that period. This translates to unpaid PAYE for the period under review.

VAT3

On fictitious VAT claims, KRA revealed that some of the firms fraudulently claimed more purchases on VAT3 than the corresponding sales declared by suppliers.

“The taxpayers claimed fictitious purchases and the VAT attributable to the purchases amounting to the fictitious VAT claimed ought to be disallowed,” one of the reports read.

Among the companies included in the reports are Kenya Kazi Linited, Lavington Securities Ltd, Securex Agencies Kenya Limited, Wells Fargo Ltd, BABS Security Limited and Delta Guards Ltd.

Others are Gyto Success Company Ltd, Riley Falcon Security Services Ltd, Total Securities Surveillance Ltd, and Wins Guards Ltd.

In the case of one of the companies, the KRA report stated: “A review of the taxpayer purchases claimed on VAT3 returns from different supplier’s shows that taxpayer fraudulently claimed more purchases on VAT3 than the corresponding sales declared by suppliers by Sh7,454,870 for the period between 2016 and 2021. Input VAT amounting to Sh1,005,726 should be disallowed.”

The report further states that analyses of the companies’ bank accounts revealed that they under declared income tax and VAT turnovers.

Other companies were found not to be declaring the actual number of their employees, according to the intelligence report.

In the case of one company (name withheld), the report reads: “Reconciliation of annual Salaries & Wages P&L account against declared PAYE gross salaries do not match showing a variance of Sh1,511,798,204, which translates to estimated PAYE of Sh453,539,461 for the period January 2015 to June 2020.”

A reconciliation of the expected sales against declared income on IT2C also indicated that other companies under reported sales.

Between 2015 and 2019, the security firm under reported a total of Sh533,948,087, translating to an estimated income tax of Sh160,184,426.

In another report dated April 13, 2023, the KRA noted that the employment expenses for another company including salaries, wages and direct wages declared on ITC2 for the year 2019/2020 are not commensurate with employee numbers given that there is a decline in the number of employees declared in the company’s monthly PAYE returns.

The company is also said to have an outstanding tax liability for PAYE in form of penalty and interest for the months of September 2018, October 2018, December 2018 and January 2019, amounting Sh9,419,389.

The report further states that the company inflated direct expenses on IT2C returns.

Under declaration

For instance, the company pays for the services of police escorts for their cash-in-transit services and thereafter inflates these expenses in IT2C returns under the provision of direct expenses.

The report noted that the Toyota Proboxes that are utilized as chase cars have continually been subjected to wear and tear as commercial motor vehicles despite the company not having waiver from KRA to allow them to subject them to chase cars wear and tear as commercial vehicles.

Analysis of 13 bank accounts depicts that the taxpayer under declared income tax and VAT turnovers for the years of income 2014/2015 and 2015/2016. The analysis reveals that the company under declared the Income Tax company turnover by Sh436,958,454 and this translates to an estimated income tax of Sh131,087,536.

The under declared VAT turnover for the same period amounted to Sh470,883,044. The estimated VAT assessed from this under declaration amounts to Sh75,341,415.

Regarding another company based in Parklands Nairobi, a report indicates that it has been involved in tax evasion in the course of doing business

Between January 2016 and April 2021, two bank accounts analyzed held by the company received a cumulative amount of Sh834,050,025 in form of cash deposits, cheque deposits, EFT deposits and transfer inwards.

Tax returns

“The company did not declare the entire amount in their annual tax returns resulting in loss of revenue. The company’s accounts are domiciled at Equity Bank,” the report states.

The report further states that the schemes involved; under declaration of Sh346,635,294 Income tax (Sh103,990,588); under declaration of Sh362,105,903 Vat sales (Sh57,936,944); discrepancies in PAYE remittances, variance of Sh16,732,688 (Sh5,019,806).

“VAT sales for the years 2016, 2017, 2019, 2020 and 2021 were less than gross income turnover for the same period leading to an under declaration of VAT taxes by Sh57, 936,944,” the report adds.

A review of another firm’s tax declaration also reveal that the company evaded taxes through under-declaration of gross turnover in the income tax returns annual sales on the VAT3 returns against income made on the company’s bank statements between 2017 and 2021.

The company is also accused of having fraudulently claimed more purchases on VAT3 than corresponding sales declared by suppliers of Sh7,454,870.

It is further revealed that in the years 2017, 2019, 2020 and 2021, the company under declared income by Sh185,622,876.

“The total corporate tax due is Sh11,694,240. The company under declared sales on the VAT returns for the years 2019, 2020 and 2021 compared to the expected sales on the company’s bank statements by Sh203,054,914. The total VAT payable is Sh32,488,786,” it adds.