KRA wins in “Missing Trader” tax evasion scheme suit

KRA wins in “Missing Trader” tax evasion scheme suit


The Tax Appeals Tribunal (TAT) has ruled in favour of the Kenya Revenue Authority (KRA) in a case filed by Roshina Timber Mart Limited seeking orders to stop KRA from disallowing input VAT that was based on fictitious tax invoices from ghost traders, dubbed the “missing traders” scheme.

The scheme was established to reduce tax liability without the taxpayer making taxable supplies or the supplier of the goods being captured on the tax invoices used to deduct input VAT.

In its ruling delivered on 26th February 2020, the TAT held that the law places the burden of providing supporting documentation on the taxpayer and in the absence of such documentation; KRA is left with no option but to apply the law and assess the tax.

The Tribunal further stated that failure to keep, retain or maintain records is an offence as stipulated under Section 93 of the Tax Procedures Act, 2015. This means that accepting the position advanced by Roshina Timber Mart Limited and allowing input VAT recovery would amount to aiding criminal conduct.

The company argued that it had no obligation or responsibility to trace the supplier and did not doubt the existence of suppliers who issued it with the invoices.

The TAT also established that the VAT Act, 2013 stipulates that for input VAT to be allowable for deduction, it must have been incurred for the purpose of business or to make taxable supplies.
KRA was therefore correct in seeking for additional documentation to prove that there were taxable supplies made to the company.
The Tribunal went on to state that even if proof had been provided to show that the supplies
took place, KRA was still within its power to establish whether the input VAT claimed

by the company was incurred for business purposes in order to allow or disallow its recovery.

The Tribunal further determined that KRA rightly demanded Corporation Tax from the impugned transactions with the phantom “missing traders”.

KRA has previously experienced similar challenges where unscrupulous taxpayers who do not make taxable supplies use fictitious tax invoices to claim input VAT.
The ruling is a boost to KRA in the fight against such schemes.

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