The Netherlands-based agricultural commodities trading firm, Louis Dreyfus Company (LDC), is embroiled in a controversy over alleged tax evasion involving its palm oil importation operations in Kenya. Documents obtained by Citizen TV suggest that LDC may have evaded over Ksh.62 billion in taxes over a span of three years.
According to the documents, LDC has been importing finished palm oil while declaring it as crude palm oil to avoid paying the correct duties. This practice reportedly dates back to 2022 and extends into 2024. The company is accused of using a mix of 40% refined oil and 60% crude palm oil in the same shipment. This method, which contravenes World Customs Organization guidelines, has allowed LDC to bypass the applicable taxes and duties on the entire cargo.
Under World Customs Organization guidelines, any cargo that has been adulterated cannot be classified as crude palm oil. Instead, the entire shipment should be subjected to the duties that apply to the refined product. In LDC’s case, this would have significantly increased their tax liability.
For the year 2022 alone, LDC imported 233,000 tons of palm oil, which, if taxed correctly, would have incurred an import duty of $500 per ton, or Ksh.64,000 at the current exchange rate. This would amount to a total duty of $116.5 million (approximately Ksh.14.9 billion). Additionally, the company would have been liable for an import declaration levy of 2.5%, totaling $2.91 million (around Ksh.373 million), a Railways Development Levy (RDL) of 1.5% amounting to $1.75 million (about Ksh.218 million), and a Value Added Tax (VAT) of $16 per ton, totaling $18.64 million.
At the 2022 exchange rate of Ksh.118 to the dollar, the total taxes and duties would have amounted to approximately Ksh.16.49 billion. For 2023 and the first half of 2024, the estimated losses from similar practices reportedly add up to Ksh.32.54 billion and Ksh.13.83 billion, respectively. This brings the total potential tax evasion to a staggering Ksh.62.86 billion over the three years.
LDC’s alleged scheme involves the use of “pre-enter clearance,” a process where the company submits necessary documentation and information about their shipment before it arrives at the Port of Mombasa. This pre-clearance facilitates quicker port processing as most of the paperwork and checks are completed beforehand. However, this method has raised questions about the thoroughness of the inspections and why the discrepancies were not flagged by tax authorities.
Efforts to reach the Kenya Revenue Authority (KRA) for comment on this matter have been unsuccessful. Additionally, attempts to contact LDC through the information available on their website have also not yielded any response. The lack of clarity from both the tax authorities and LDC has only fueled speculation and concern over how such a significant tax evasion scheme could have gone unnoticed for so long.
As this situation unfolds, it underscores the critical need for rigorous checks and balances in the importation process to ensure compliance with tax regulations. The potential loss of revenue highlights the importance of robust oversight mechanisms to prevent similar cases of tax evasion in the future.
