- Illegal trade Corrupt officials at the Times Tower and police look the other way for manufacturers to forge excise stamps, costing taxman revenue.
When a retailer sees that only their products are being targeted all the time while others are never touched, they would rather stock that one.
That leaves the manufacturer with no option but to join the scheme and give out the weekly bribes,” our source intimated.
The bribe is said to be anything between Sh1.5 million to Sh3.5 million per week from each spirit manufacturer in the cartel comprising the 32 licensed spirit manufacturers.
The ongoing manhunt for billionaire Humphrey Kariuki for tax evasion at Thika-based spirit distillery has opened a lid on the inside workings of a cartel powered by senior Kenya Revenue Authority (KRA) officials to steal billions shillings in taxes from the alcohol sector.
Sunday Nation has learnt from multiple sources within the industry, insiders at the KRA and police that the tax evasion empire has been in existence for years is driven by a well-organised machinery that pockets fat weekly bribes that run as high as Sh48 million a week.
So rampant is the practice that it has become the tool of trade in the sector. Alcohol manufacturers who refuse to play ball are quickly pushed out of the business through vicious pricing war or police harassment.
First, there are suppliers of ethanol — mostly from outside the country, then there is the group that imports fake excise stamps and then the spirits manufacturers, who complete the production end of the triangle.
On the other end, is a team of KRA officials and police who look the other way to allow the bleeding of tax revenues running into billions.
For tax purposes, the alcohol industry is heavily regulated with production monitoring machines installed in every licensed manufacturer’s production line to assign a unique tax stamp on every bottle passed.
The Sh17 billion Excisable Goods Management System (EGMS), which the KRA procured from a Swiss multinational SICPA Securities Solutions is meant to send real time data to Times Tower, the taxman’s headquarters, on every drop of alcohol that a manufacturer releases into the market. A team of KRA Market Surveillance Office (MSO) also patrols the wine and spirit wholesalers and retailers to randomly sample and verify that the products being sold are compliant. The officers have a scanning gadget that can detect fake stamps instantly. The KRA also introduced and widely publicised a mobile application to distinguish between genuine and fake excise stamps in 2016 to enable anyone to flag out the fake stamps on alcohol and cigarettes. The app has since been deactivated.
It is within this tight monitoring that loopholes have been created to allow for the revenue leakages in the heavily taxed sector that has seen individuals become multimillionaires.
Alcohol manufacturers collude with KRA officials to stop either the EGMS system or sidestep the system and pack alcohol, thus evading tax.
Director of Public Prosecutions Nordin Haji in his arrest order alluded to this when he accused Africa Spirits of tampering with their production system at the factory thus making fake declarations to the KRA for four years without being detected. In court papers, the taxman said Kenya lost Sh41.5 billion over the period.
Interestingly, no KRA official has been arrested.
Director of Criminal Investigations George Kinoti on Saturday confirmed that a number of KRA staff were being investigated to break the tax evasion cartel in the alcohol sector.
“Yes! We are investigating and indeed taking them to court. There is no successful theft of tax or evasion without the counsel, aid, procuring and abetting by KRA staff,” said MrKinoti in response to queries whether KRA staff were under investigation.
Top in the investigations included the MSO officers and top KRA official they report to at Times Tower said to have amassed wealth from the weekly bribes collected from the scheme.
Then there is the trade in ethanol where some manufacturers do not pay tax.
The truck trailed by the officers from the Directorate of Criminal Investigations (DCI) ferrying 80 drums of unaccustomed ethanol in the African Spirits investigation is said to have just been one among the more than 400 that would have supplied enough ethanol to distil spirit capable of evading the Sh41 billion in tax.