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Post Reply: KRA Cracks Down on Massive VAT Fraud Scheme, Removes 475 Officials

<blockquote><div class="quotetitle">Quote from <a class="profile-link highlight-moderator" href="https://lawguide.co.ke/understanding-law/legal-forum/profile/lawyer/">Lawyer</a> on May 13, 2025, 5:41 am</div><div id="pl-5582" class="panel-layout">
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<p dir="ltr" data-pm-slice="1 1 []">The Kenya Revenue Authority (KRA) has taken decisive action against a fraudulent value-added tax (VAT) scheme that has been costing the country at least Ksh 2.5 billion every month. Following an internal audit, KRA has removed 475 staff members from approving VAT refund applications and flagged 4,434 traders involved in the scam.</p>
<p dir="ltr" data-pm-slice="1 1 []">The officials removed from their duties constituted 74% of the team responsible for overseeing VAT claims registration, leaving only 170 personnel to manage the critical process. The audit revealed that the fraudulent network involved filing claims for non-existent transactions and failing to remit the 16% VAT charged on goods and services. According to the audit, some companies created fake transactions solely to claim VAT refunds, while others disappeared after charging VAT without remitting it to the authority. KRA estimates that the scheme has led to losses exceeding Ksh 30 billion annually. Additionally, there are concerns about further revenue losses due to falsified income tax invoices related to the same network, compounding the economic impact.</p>
<p dir="ltr">The fraud appears to be a sophisticated version of the “missing trader scheme,” a common tax evasion tactic where fraudsters register shell companies to generate fake VAT invoices, enabling illegitimate tax deduction claims without actual business transactions. These entities often vanish before remitting any VAT, depriving the government of significant revenue. KRA’s crackdown aims to dismantle this network and prevent further losses.</p>
<p dir="ltr">The removal of 475 officials is a significant step to curb internal collusion, which may have facilitated the fraud. By reducing the number of personnel involved in VAT refund approvals, KRA hopes to strengthen oversight and ensure that only legitimate claims are processed. The flagging of 4,434 traders indicates a broad investigation into the business community, targeting those who have exploited the VAT system. KRA’s actions build on its previous successes in combating VAT fraud. For instance, in August 2024, KRA won a Ksh 1 billion case against a Chinese firm involved in a similar “missing trader” scheme, demonstrating its commitment to tackling tax evasion.</p>
<p dir="ltr">The scale of the fraud highlights the challenges facing Kenya’s tax administration, particularly in the digital age, where falsified invoices and shell companies can be created with relative ease. The annual loss of over Ksh 30 billion represents a significant blow to public finances, potentially affecting funding for critical services like healthcare, education, and infrastructure.</p>
<p dir="ltr">KRA’s crackdown may also prompt calls for stricter regulations and enhanced technology to detect and prevent such schemes. The authority has previously implemented measures like the iTax system to improve transparency, but the persistence of VAT fraud suggests that further reforms may be needed.</p>

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