How smart cartels are evading tax at the port
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A cartel operating at the port of Mombasa has devised a scheme to evade taxes. The ploy involves abandoning cargo and later buying the same during auctions.
The strategy, according to those closely involved, has seen importers faced with heavy customs duty and demurrage charges get away with billions of shillings in taxes, with some officials at the port of entry involved in the deal.
Others are said to under-declare the goods before abandoning them, only to buy them back during the sale using different identities.
This deepens the tax bleeding in the scheme, which may be among the largest loopholes at the country’s entry point.
Last week, the Kenya Revenue Authority advertised several goods lined up for auction on May 15.
The cargo comprising close to 450 vehicles and several motorbikes was listed in a gazette notice complete with owners’ details and contacts.
Some of the listed owners, who agreed to talk anonymously, told the Sunday Nation that since the start of the crackdown on illicit imports, loopholes previously used to smuggle cargo have become rare, prompting errant traders back to the drawing board.
The new scheme involves importation of cargo with no intention to clear, but wait for them to be listed for auction and buy them at a price lower than the duty that was outstanding in the first place.
“Sometimes you import a car with a target client in mind but when the car lands here, you find the duty is way higher than you had envisioned. Without anywhere to sell, you leave it at the port, storage fees rise too high and your only other way out is to buy it at an auction like the one coming up,” a car dealer listed in the April 2019 action notice said.
In the scheme, some importers ship one half of pairs of shoes before abandoning them to be auctioned as useless commodity.
They then buy them at the auction before making another shipment of the other half of the pairs and matching them at a godown – effectively evading tax.
The vehicles listed in the auction include high-end brands such as Range Rovers, Toyota Land Cruisers and BMW X5s, signalling the tax value the unscrupulous traders may evade.
According to other traders, high duty bills came as a result of the March 2019 revision of the Current Retail Selling Price (CRSP), the value KRA uses to calculate custom duty for imported cars.
CRSP, which is the estimated price of a brand-new version of the car an importer buys, is used by KRA to calculate the various duties and levies charged for imported cars. The levies include import duty, excise tax, value added tax, import license (IDF) and railway development levy.
Importers are also required to pay a registration fee, port charges and maritime levy, which in most cases vary according to the vehicle drive configuration (left or right-hand-drive), the fuel it uses as well as its mode of transmission) (manual or automatic) or any other enhancements.
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In March, KRA revised the CRSP for motor vehicles and motor bike classes, a yearly exercise done depending on the trend of importation to take advantage of the favourite makes and models and collect maximum tax.
A Land Cruiser VX with an engine capacity of 3,000cc and running on diesel was valued at Sh11.6 million while a 1,500cc Mazda Demio was priced at Sh1.6 million, which is then used to calculate the duties.
In the latest revisions from March 25, the taxman seemingly targeted the small engine capacity cars currently being favoured by mobile app taxi hailing services, including the Honda Fit, whose CRSP was set at Sh3.3 million for the 1,500cc petrol model.
Apart from cars and motorcycles, KRA has also lined up for auction tens of 40-foot containers full of used clothing, cooking oil, molasses, gas cylinders, car parts and special vehicles like dump trucks.
Sources believe the goods may have been misbranded by cartels out to evade taxes. During the auction, the unscrupulous traders are said to be able to organise for the bids to land on the target buyers.
Credit: Edwin Okoth | Daily Nation