Types of Fraud

Tax fraud involves tax evasion which is a deliberate attempt to illegally obtain a tax benefit.

This comes in many forms including:

• Forging books of accounts
• Using cooked statements
• Failing to register as a tax entity
• Failure to furnish tax returns
• Failure to pay taxes,
• Failure to keep records,
• Failure to withhold taxes,
• Obstructing, bribing and, or impersonating a tax official
• Aiding and abetting a tax crime

Actions that lead to Tax Fraud/Tax Evasion?

a) Manifest Fraud

This occurs when shipping agents illegally alter manifests prior to uploading them to the Customs Manifest Management System (MMS), thereby setting the stage for false declarations.

b) Use of fake security bonds to clear transit goods

Some importers and clearing agents use fake Customs transit bonds to clear transit goods. This happens by collusion between clearing agents, insurance companies and Customs officers.

c) Diversion/Dumping of transit goods

Transit goods are goods imported through the East African Community (EAC) region to a country outside the region. Transit goods within the EAC region are not subject to import duty. However if the consignment fails to exit the region within the prescribed period and no official extension is granted, duty becomes due (this is diversion of transit goods). Customs department secure the duty due on transit cargo through the execution of a security bond. Goods prone to diversion include sugar, petroleum, rice and motor vehicles.

d) Customs Mis-declarations

A Customs declaration is a statement showing goods being imported on which duty will have to be paid. This is done by filling in a Customs declaration form. However, some importers/clearing agents make wrong declarations with the objective of evading payment of duties or reducing the duties payable. Making a wrong declaration (i.e. mis-declaration) is a prosecutable offence.

e)Smuggling

This involves importation or export of goods secretly in violation of the law, especially without payment of duties. Recent cases include: importation of high end vehicles cleared as mattresses, baby car seats, bed sofas, toys, clothes, beach beds, shoes, belts and handbags.

f) Fraudulent cancellation of export entries

This is use of fake Customs entries as proof of export, which thereafter leading to fraudulent VAT refund claims.

g) Import/Export of prohibited or restricted goods

Prohibited goods are the goods that cannot be imported/exported into/out of the country. Restricted goods are those which must meet certain conditions before clearance through Customs.

Examples: ivory, macadamia nuts, flora and fauna etc.

h) Fake payments of import taxes

This happens when Customs entries are fraudulently posted in the Customs system and validated with fake bank payment receipts.

i) Dealing with excisable goods without a valid licence

By Law, dealers in excisable products (especially tobacco, wines and spirits) should be licensed.

j) Nil/non filing income tax returns

All individuals with income are required by law to submit Income tax returns together with accounts where applicable. The returns are due on or before the end of the 6th month after the end of accounting period. Non-submission of tax return may result into prosecution.

k) Invoice fraud

The scheme involves shell companies through which money is channelled as payments for purchase of goods while in actual sense no goods are supplied.

l) Under declaration of income

By Law, all income earned in Kenya is taxable. However, some individuals under declare their income for purposes of reducing their tax liability.