China Communications Construction Company Ltd Faces Ksh 1 Billion Tax Fraud Ruling in Kenya

China Communications Construction Company Ltd (CCCC) has been ordered to pay the Kenya Revenue Authority (KRA) over Ksh 1 billion following a ruling by the Tax Appeals Tribunal (TAT) that upheld the KRA’s assessment of tax evasion. This decision comes after CCCC’s appeal against a Ksh 1,047,557,661 tax demand was dismissed on August 9, 2024. The case exposes a sophisticated tax evasion scheme involving inflated Value Added Tax (VAT) claims and fictitious transactions.

CCCC, a major player in Kenya’s infrastructure sector with significant projects such as the Nairobi Expressway and the Nairobi Eastern Bypass, was found to have orchestrated an elaborate tax fraud scheme. The KRA’s investigation revealed that the company engaged in a “missing trader” scheme, where it claimed VAT refunds on purchases that either did not occur or were not linked to legitimate business activities.

According to KRA Commissioner for Investigations & Enforcement David Yego, CCCC utilized fictitious invoices from non-existent or fraudulently registered companies to inflate their input VAT claims. The fraudulent scheme involved multiple layers of shell companies to obscure the true nature of the transactions. This complex network was designed to minimize or evade tax liabilities through deceptive practices.

The KRA’s investigation, which began with an audit in early 2023, uncovered that CCCC claimed inflated VAT input from several shell companies. These included Dial an Errand Ltd, from which CCCC claimed Ksh 638,251,386; Haru Limited, Ksh 156,532,074; Njafos Holdings Ltd, Ksh 256,932,293; Masaviru Investment Limited, Ksh 157,035,000; Math and Kith Investment Company Limited, Ksh 213,448,586; and Lunza Solutions Limited, Ksh 221,061,000.

These shell companies, classified as tier 2 in the scheme, in turn, received VAT claims from other shell entities at the tier 3 and tier 4 levels. Some of these companies, such as Benlaz Company Ltd, Hao Yuan International Company Limited, and Crystal Touch Company Ltd, were found to be either non-existent or fraudulent. Notably, individuals listed as directors or signatories of these companies were either unaware of the companies’ existence or had left Kenya long before the transactions occurred.

The KRA’s findings highlighted that the fraudulent invoices were used to justify VAT claims, thereby reducing the tax liability on significant income received by CCCC. The trail of financial transactions showed that the funds received by the shell companies were quickly transferred to USD accounts and then wire-transferred abroad, including to China.

The exposure of this scheme raises serious concerns about the oversight and regulatory measures in place for multinational companies operating in Kenya. CCCC, which is majority-owned by the Chinese government, has been involved in numerous high-profile projects across Kenya. The company’s significant role in major infrastructure developments further underscores the gravity of this tax evasion case.

The ruling against CCCC reflects the KRA’s commitment to tackling tax fraud and ensuring compliance among international companies. By uncovering and prosecuting such schemes, the KRA aims to uphold tax integrity and protect the national revenue base.

As Kenya continues to develop and attract foreign investment, the case serves as a critical reminder of the need for robust regulatory frameworks and vigilant enforcement to prevent and address tax evasion. The outcome of this case may also influence how other multinational firms approach their tax obligations in Kenya, potentially leading to tighter scrutiny and increased accountability.

In conclusion, the KRA’s successful prosecution of China Communications Construction Company Ltd for tax fraud highlights the complexities and challenges of managing tax compliance in a globalized economy. The substantial financial penalty imposed on CCCC underscores the importance of transparency and integrity in business operations, particularly for companies engaged in major public projects. As the dust settles on this high-profile case, it remains to be seen how this ruling will impact the broader landscape of international business and tax compliance in Kenya.