A High Court decision favouring the Kenya Revenue Authority (KRA) in a KES 773 million tax dispute has sent a clear signal to corporations engaged in complex tax evasion schemes. The ruling is a significant victory in the nation's battle against high-value tax fraud, particularly the 'missing trader' scheme that has cost the public billions in lost revenue.

This judgment is more than a corporate legal battle; it directly impacts the funds available for Kenya's development. The KES 773 million at the centre of this case represents money that could fund essential public services, from healthcare and education to critical infrastructure, making this a win for every compliant taxpayer in the country.

The Anatomy of the Fraud

The case against Dinesh Construction Ltd revolved around a KES 773 million tax assessment for the period between 2016 and 2021. KRA investigators flagged several serious discrepancies. The company was accused of using a 'missing trader' scheme, a tactic where a supplier charges VAT but then disappears without remitting the tax to KRA, leaving a trail of fictitious invoices that other businesses use to fraudulently claim VAT refunds.

According to the audit, the firm's key offences included:

• Claiming input VAT from suppliers who were either non-existent or non-compliant.
• Failing to justify KES 187 million in bank deposits that did not match declared income.
• Underreporting its income and failing to declare employee benefits.

Tax evasion on this scale severely damages the economy. It creates an unfair market where compliant businesses cannot compete with fraudulent ones that lower their prices, and it erodes public trust in the entire tax system.

A New Era of Due Diligence

In its defence, the construction company argued it should not be responsible for policing the tax compliance of its suppliers. The High Court emphatically rejected this argument, setting a crucial new precedent. The judge noted that simply providing an invoice is not enough to prove a transaction's legitimacy, especially for deals worth millions.

"Commercial reality dictates that the movement of goods worth hundreds of millions of shillings leaves a footprint beyond a paper invoice," the judge remarked, emphasizing that businesses must maintain verifiable records like delivery notes, purchase orders, and stock logs. This ruling shifts the burden of proof, compelling companies to conduct thorough due diligence on their supply chain partners.

The decision is expected to act as a powerful deterrent against similar schemes, reinforcing that tax compliance is a fundamental obligation for Kenya's economic stability. It arms the KRA with stronger legal backing as it continues its crackdown on tax evasion, which costs the country hundreds of billions of shillings annually.