KRA targets Humphrey Kariuki's firm to recover lost taxes

Billionaire investor Humphrey Kariuki was on Thursday fighting against possible forfeiture of his behemoth alcohol business in Thika after Kenya Revenue Authority (KRA) officials started a recovery process that is bound to rattle many other tax cheats.

Mr Kariuki’s African Spirits Limited (ASL) is one of the largest alcohol manufacturing plants in East Africa and, ironically, has been one of the most vocal in the fight against counterfeits and illicit liquor.

The ASL’s woes have been compounded by the Excise Duty Act of 2015, which was amended last year to permit KRA to seize the factory and goods found within premises where a tax offence has occurred.

ASL produces Glen Rock, Legend Black, Blue Moon, and Legend brandy. “The law is very clear; if you are caught with fake stamps and once we have legally verified that a law has been broken, Section 31 of Finance Act 2018 gives us powers to seize the plant and the goods,” KRA Commissioner for Intelligence James Mburu told Nation last evening.

COUNTERFEIT

More so, bar operators and distributors of products found with fake stamps could also be liable to pay upwards of Sh5 million in fines, according to legal Notice No 43 of 2017.

For years now, the company’s PR department and senior managers have been in the news asking for the tightening of rules on ethanol trading and protection of the industry from counterfeiters and tax dodgers.

When National Treasury Cabinet Secretary Henry Rotich announced these measures, ASL Managing Director Chris Lucas praised him, saying, they offered a good foundation to curb the sale of counterfeits.

Similarly, when KRA announced tighter rules on ethanol sale, Corporate Affairs Manager Anthony Kagiri said: “We have always called for stricter regulation on the supply of ethanol in this country and we are glad the government is now taking action.

"We support KRA in ensuring accountability of this key ingredient in the manufacture of alcohol.”

KRA STAMPS

But it was when following a lorry that was carrying illicit ethanol, hidden under sacks of maize, that the KRA officials stumbled on what they say is one of the biggest finds: A multibillion racket that officials say could amount to Sh6 billion of lost revenue.

Yesterday the Directorate of Criminal Investigations started interrogating KRA procurement officers in order to shed light on the source of fake KRA stamps that were disguised as water labels.

Most curious to investigators is how ASL managed to import the fake KRA stamps found within its premises and how the printer of those stamps managed to cleverly mimic the original.

“What we have so far found is that the fake stamp serial numbers are traced and appear consistent with the original ones — only that they are not in the KRA system,” Director of Criminal Investigations (DCI) George Kinoti, who is spearheading investigations, said.

Focus was also turning on Sicpa, the contracted manufacturer of KRA stamps and whose officials have been summoned by the DCI.

COMPLICIT

While there is currently no evidence linking Sicpa to the fake stamps recovered at the Thika plant, detectives are trying to unravel the puzzle of how the stamps possess the same features like the genuine stamps.

“It is only KRA which could import revenue stamps into Kenya and they come directly from Sicpa’s factory. How any manufacturer could have reels that have not been entered into our system is a mystery,” Mr Mburu said.

KRA operates the Excisable Goods Management System (EGMS), which manufacturers use to order stamps.

Within the system, KRA can determine how many stamps are in stock and also track their usage at the touch of a button.

PROCEDURE

An importer can only ask for stamps depending on the quantity of their production or import order.

More so, KRA cannot issue stamps for orders that have not been procured through the system.

“The applicant usually indicates who will collect the stamps and their ID numbers. This is captured by the system and we have all the records and can account for every stamp in the market.

"But if a stamp is not in our system, then it is fake, its features notwithstanding,” Mr Mburu said.

The system can also track “activated stamps through the Stock Keeping Unit where the onus is on the manufacturer to declare where the stamps will be affixed. “The EGMS is a track and trace system,” he says.

SICPA

But at the Thika factory, KRA officials found that the flow meters that they usually fix to measure the amount of ethanol and alcohol produced had been bypassed with illegal pipes.

The next focus of investigators will be on the Swiss firm Sicpa, which has been printing the stamps for KRA.

While neither KRA nor the investigators are shedding light on why company officials were summoned alongside ASL, the company has been dogged with controversy on its dealings in Kenya.

In his report for the 2015-2016 financial year, Auditor-General Edward Ouko questioned why the Kenya Revenue Authority expanded Sicpa’s excise stamps deal through single-sourcing, without proper justification.

The KRA, at the time, extended Sicpa’s contract after opting to levy excise duty on bottled water, non-alcoholic beverages and cosmetics.

BRIBERY

The move would require additional excise stamps to trace and track goods that fell in the widened tax category, and KRA was to pay Sicpa Sh4.8 billion for the services.

Sicpa has been providing KRA with excise stamps since 2013. Apart from the stamps, Sicpa also provided KRA with a system to track goods affixed with the excise imprints.

The National Assembly’s Public Investments Committee questioned KRA’s deal with Sicpa after legislators found out that Kenyans will still part with an arm and a leg if KRA opts to walk out of the contract.

Public Procurement Oversight Authority Director-General Maurice Juma poured fuel into the fire at the PIC hearing of September 27, 2016 when he revealed that KRA first contracted Sicpa on May 9, 2010 — three years before the Swiss firm was incorporated.

Sicpa’s Sh17.7 billion contract with KRA is also part of an investigation by the UK’s Serious Fraud Office into giant tobacco manufacturer BAT, which is suspected to have dished out bribes to ensure that the Swiss firm won the excise stamps tender.

PROBE

But Sicpa denied benefiting from any bribe allegedly dished out by BAT following the allegations.

The KRA, at the time, also said it was launching investigations into the bribery claims touching on Sicpa and the excise stamps tender.

To date the taxman has not made any further communication on the investigations.

The SFO on Thursday confirmed to the Nation that the investigation is still ongoing, but added, it could not comment further at the moment.