Kenya: KRA Claims Sh25 Billion As Tax From Foreign Firms

KENYA Revenue Authority is currently recovering Sh25 billion outstanding tax from international companies that a recent audit showed were involved in transfer pricing, it announced on Friday.

Commissioner general John Njiraini said the authority has recently conducted transfer pricing audits involving over 50 cases which have so far yielded tax demands of more than Sh25 billion.

“A significant proportion of the audit effort has seen the claw back of loss positions accumulated by the companies meaning that these corporates are now in tax payment positions in respect of their future positions,” Njiraini said.

Transfer pricing happens when two companies that are part of the same multinational group trade with each other. Though not illegal it poses a problem for tax agencies in the countries involved when related companies trade with each other and then distort the price at which the trade is recorded to minimise the overall tax bill.

Njiraini said KRA is “at various stages of enforcement” in collecting the Sh25 billion owed.

The KRA boss was speaking at the African International Business and Management conference held at the University of Nairobi’s Lower Kabete campus.

KRA is scheduled to release the 2013/2014 full year revenue performance results tomorrow.

The tax agency missed its target in the second quarter of first half period by Sh3.3 billion due to poor collections within the domestic taxes and road transport departments.

However, total collections in the first half of the financial year still surpassed target with Sh470.8 billion netted against a goal of Sh470.2 billion.

The tax agency has an uphill task in the new financial year to improve collections to fund the ambitious Sh1.7 trillion national budget.

National Treasury Cabinet secretary Henry Rotich said in the budget statement presented last month that the government projects to increase revenue colelction by 15.5 per cent in the current financial year to Sh1.18 trillion with 1.08 trillion coming from ordinary revenue while Sh94.1 billion from appropriations in aid.

To meet the revenue targets, Rotich said he expects KRA to step up ongoing tax reforms and customs administration, as well as institute measures to expand the revenue base and eliminate tax leakages.