How China’s CCCC Got Exposed In A Ksh 1B Tax Fraud By KRA

China Communications Construction Company Ltd has been ordered to pay Kenya Revenue Authority (KRA) over Ksh 1 billion for engineering a tax evasion scheme.

The Tax Appeals Tribunal (TAT) upheld the tax demand by KRA after dismissing an appeal lodged by the firm on August 9, 2024 contesting KRA’s Ksh 1,047,557,661 assessment.

Investigations by KRA revealed that CCCC which has been undertaking construction of various multibillion shillings public projects in Kenya was running a complex tax evasion scheme.

The tax evasion scheme known as ‘missing trader’ entailed CCCC claiming inflated input Value Added Tax for purchases that had not been incurred or were not related to genuine business activities using fictitious invoices obtained from both fraudulently registered and non-existent companies to avoid or reduce tax liabilities.

KRA unearthed the tax evasion scheme after conducting an audit and issuing the firm with tax assessment on February 3, 2023 for VAT and income tax input which the firm rejected leading to subsequent appeal.

“In this case, the TAT was shown how China Communications Construction Company Ltd claimed input VAT of purchases of goods and services that were never supplied,” says KRA Commissioner for Investigations & Enforcement David Yego.

”A detailed evidence showed that the Chinese firm claimed inflated input VAT from six fraudulently registered companies whose director’s as indicated in the company profiles were not aware of the existence of such companies as well as purchases and financial transactions,” he added.

Firms involved in the tax evasion scheme

According to KRA, CCCC claimed Ksh 638,251,386 in inflated input VAT from Dial an Errand Ltd, Ksh 156,532,074 from Haru Limited, Ksh 256,932,293 from Njafos Holdings Ltd and Ksh 157,035,000 from Masaviru Investment Limited.

CCCC also claimed Ksh 213,448,586 from Math and Kith Investment Company Limited and Ksh 221,061,000 from Lunza Solutions Limited.

“The above six shell companies (tier 2), with no known physical addresses and location, would in turn claim input VAT of various amounts in hundreds of millions each from other shell companies (tier 3) identified as Benlaz Company Ltd, Hao Yuan International Company Limited, Colila Ltd, Crystal Touch Company Ltd, Akubi Ltd, Homematt Ltd and Ujenzi Suppliers Ltd. These tier 3 companies would also claim input VAT from two other shell/ companies (tier 4) such as Papaya Company Ltd in hundreds of millions,” says KRA.

‘Missing trader’

For instance, KRA says one of the firms, Njafos Holdings Limited, had account signatory as George Makuthi Nderitu which is different from the director indicated by the Registrar of Companies as Simon Musyimi Musyoki.

On the other hand, Suleiman Odhiambo Oganga stated that his identity had been used fraudulently to register Benlaz Company and was unaware of any transactions.

Additionally, Lassina Coulibaly who appeared as the registered director for Colila Limited was found to have left Kenya in 2006 based on the travel history from the Department of Immigration.
Crystal Touch Limited which was also used the fictitious activities by then had already been struck out from the Registrar of Companies’ records.

“Apart from demonstrating that fictitious invoices generated in the whole scheme were used to legitimize the transfers and to reduce tax liability on the significant income received by the Appellant (Chinese firm), financial transactions trail showed that the shell companies would be paid for the supply of construction materials but the subsequent recipients of the monies would immediately transfer the funds to their USD accounts and from which they wire to overseas including China,” the investigations revealed.

CCCC which is majority owned by the Chinese government has been involved in construction of multibillion shillings projects in Kenya such as the Nairobi Expressway and the Nairobi Eastern Bypass.