Investigation Reveals How Innocent Kenyans Are Unknowingly Trapped in Debts in Shocking KRA Tax Fraud Racket

KRA investigation uncovers elaborate identity theft scheme targeting ordinary citizens, leaving victims facing millions in tax liabilities

NAIROBI – A sophisticated tax fraud racket has emerged in Kenya, where criminal networks are stealing the identities of innocent citizens to create shell companies, leaving unsuspecting victims trapped in massive tax debts and facing arrest, a comprehensive investigation reveals.

The Kenya Revenue Authority’s Investigation and Enforcement Unit has uncovered what officials are calling the “identity theft tax evasion scheme” – a complex fraud operation that has ensnared domestic workers, traders, and even corporate employees in a web of financial liability they never created.

The shocking reality

The scheme’s victims include ordinary Kenyans whose personal details – national identity cards and Personal Identification Numbers (PINs) – are being harvested by fraudsters to establish companies without their knowledge.

These shell entities then become vehicles for elaborate tax evasion schemes, including fictitious Value Added Tax returns and money laundering operations.

“These individuals are later pursued for tax liabilities or fraud they are unaware of – sometimes even arrested or jailed,” KRA enforcement officials revealed during the investigation.

The investigation uncovered several heart-wrenching cases that illustrate the scheme’s devastating impact on innocent lives.

In Mombasa, trader Joy Catherine Gashengu secretly used her domestic worker’s national identity card to register for a KRA PIN, importing second-hand clothes worth Sh349 million between 2015 and 2020.

The domestic worker’s identity was used to declare goods while evading duties totaling Sh68 million. While Gashengu faces fraud charges, her employee initially found herself implicated in crimes she had no knowledge of.

Perhaps the most shocking case involves a young woman who discovered her predicament in the most dramatic fashion possible.

On September 10, 2024, she was prevented from boarding an international flight at Jomo Kenyatta International Airport due to a travel ban – only to learn she was listed as director of a company with millions in unpaid taxes.

“Upon interrogation by KRA investigators, she said that she had no knowledge of the existence and ownership of the company,” the investigation found.

Even more disturbing, she discovered she was the sole director of four other companies she had never heard of.

The travel ban had been in effect since September 2018 – six years during which she remained unaware that her identity had been stolen and used to establish a business empire that owed the government substantial sums.

The missing trader scheme

At the heart of many cases lies what investigators call the “Missing Trader Scheme” – a sophisticated fraud mechanism that has significantly impacted Kenya’s VAT collection performance.

In this scheme, fraudsters create fictitious invoices to simulate business transactions where no actual goods or services are supplied.

Companies appear to meet all legal requirements for legitimate trade while using fabricated “payments” to create artificial costs of goods sold, which are then used to claim fraudulent VAT refunds.

The scheme’s complexity allows perpetrators to hide the final economic beneficiaries of purchases, effectively shielding the real criminals while innocent victims face the consequences.

The fraud’s scale is staggering.

VAT collections fell by 4.3 percent to Sh304.1 billion in the first half of the most recent fiscal year – the first decline since the COVID-19 pandemic.

This represents hundreds of millions in lost government revenue that could have funded critical public services.

Individual cases reveal the personal toll: Safaricom employee Francisca Kathini George faced a Sh45 million tax demand for a company she insisted she had never heard of.

Despite her protests and lack of involvement, the Tax Appeals Tribunal ruled against her, noting she couldn’t produce documents proving her innocence – an almost impossible standard for victims of identity theft.

The scheme has also ensnared foreign nationals. Chinese citizen Cai Ronggui received a four-year jail sentence for tax evasion amounting to Sh74.6 million through Yiyuan Trading Company Limited, which generated Sh162.2 million in income.

Ronggui maintains he never owned the company and suggests people close to him may have registered it using his stolen details.

Systemic vulnerabilities

The investigation reveals concerning gaps in Kenya’s business registration and tax collection systems that fraudsters are exploiting.

The ease with which criminals can establish companies using stolen identities suggests fundamental weaknesses in verification processes.

KRA staff have previously faced accusations of colluding with tax evaders and accepting bribes, raising questions about internal controls and oversight mechanisms designed to prevent such schemes.

Beyond the financial implications lies a human tragedy.

Victims describe the psychological trauma of discovering they’re wanted by authorities for crimes they never committed.

Some have lost their livelihoods, faced imprisonment, or been unable to travel internationally due to fraudulent activities conducted in their names.

The scheme particularly targets vulnerable populations, including domestic workers and other low-income individuals who may lack the resources or knowledge to monitor their financial and legal standing effectively.

The Kenya Revenue Authority has launched an intensive investigation into at least four confirmed cases of identity theft tax evasion, with officials indicating the scope may be much broader.

The enforcement unit is working to distinguish between genuine perpetrators and innocent victims caught in the fraud web.

However, the investigation reveals that proving innocence remains challenging for victims, who must demonstrate they had no knowledge of or involvement in companies registered in their names – often without access to the documentation needed to support their claims.

This investigation exposes critical vulnerabilities in Kenya’s tax and business registration systems that require immediate attention.

The ongoing cases represent just the tip of what appears to be a much larger criminal enterprise that threatens both government revenue and individual citizens’ financial security.