What does Kenya’s tax crackdown mean for contractors?

Tax crackdown Kenya

22nd November 2019

Kenya is one of Africa’s fastest growing markets. Recently ranked 61st in the World Bank’s Ease of Doing Business Index, the nation is also the 8th largest economy in Africa. Furthermore, the country is undergoing a number of large scale developments, such as the Mombasa-Juba railway – which are certain to require the skills of overseas specialists.

However, despite getting stronger economically, the country has also been ramping up its crackdown on tax evasion. This week, it seems this approach is very much still in favour, as the Kenya Revenue Authority (KRA) took advantage of legislation to stop 29 suspected tax cheats from exiting the country, chasing a suspected £70 million in lost funds. Contractors looking to move to the region need to be aware of the tax crackdown in Kenya.

Kenya’s tax crackdown

As part of the continued tax crackdown in Kenya, the country has been taking advantage of Section 45 of the Tax Procedures Act, which gives tax authorities the power to disrupt travel of individuals until outstanding taxes are paid.

Authorities issued these orders against 52 Kenyans and 51 foreigners between 2017 and 2018. Most recently, 29 people were prevented from leaving the country. The estimated combined amount of tax evaded by these individuals sits at Sh9.2 billion (c.£70m), but the exact amount may not be known because ‘there are instances where investigations are still ongoing.’

The 29 individuals hold businesses in sectors including alcohol and beverages, construction, mobile and computer accessories, sports tourism, manufacturing, and gas distribution. These sectors regularly account for some of the highest unpaid taxes in Kenya.

Offenders in the alcohol and beverage sector owe the taxman more than Sh40 billion in unpaid taxes, the construction sector owes over Sh2.5 billion, the mobile and computer accessories Sh2 billion, sports tourism over Sh1 billion, while the manufacturing sector owes more than Sh300 million.

A wider push

In general, this is part of a wider tax crackdown in Kenya, as the country ramps up its pursuit of non-compliant individuals, with the taxman declaring the intention to prosecute up to 600 offenders this year, up from 222 in 2018. This has been reflected in aggressive rhetoric by tax chief, James Mburu, who suggested that tax evaders were ‘bleeding the country to death.’  Mburu also said that many businesses and individuals ‘have lifestyles that are not consistent with what they pay.’

In October, we wrote about how businessman Humphrey Kariuki was arrested on claims of tax evasion amounting to more than Sh41 billion by Africa Spirits and Wow Beverages in Thika. Keroche Breweries founders Tabitha Karanja and her husband Joseph Karanja have also been charged on suspicion of evading taxes amounting to Sh14.4 billion.

The tax crackdown in Kenya has also brought a focus on big businesses, with Sh6 billion recovered from 27 betting firms whose licences have been suspended by the government over tax issues. In fact, when commenting on these organisations Mburu stated that ‘there are a few Kenyans who have made tax evasion their business model. We will not spare them.’

Contractors need to be aware

Ultimately, while the tactic of preventing individuals from escaping the country may be unique to the tax crackdown in Kenya, this news further illustrates that contractors cannot ignore the global movement towards tougher tax compliance. Even in developing nations like Kenya, contractor compliance is getting tougher as countries look to recoup lost revenue.

As it stands, wherever contractors choose to work, compliance will be getting stricter, and the risks associated with getting it wrong far higher. Ignorance will not be deemed a defence. However, this shouldn’t stop you from chasing your dream opportunity. In order to ensure you are compliant in any destination, from Kenya and Ghana to Denmark or Germany, speak to an expert – contact us today.

 

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