A recent High Court decision in favour of the Kenya Revenue Authority (KRA) against a construction company, upholding part of a Sh773 million tax assessment, marks a significant milestone in the country’s fight against tax evasion. The ruling delivers a clear message that complex schemes such as the “missing trader” fraud should be met with firm legal consequences.

The judgment is widely viewed as a victory not only for KRA but also for millions of compliant taxpayers whose contributions sustain national development.

The dispute centred on allegations that the company participated in a missing trader scheme, failed to declare employee benefits, and was unable to explain millions of shillings in bank deposits. 

A missing trader scheme involves a supplier charging VAT but disappearing without remitting it, while other players in the supply chain use invoices from these non-compliant entities to claim fraudulent input VAT refunds.

According to KRA’s audit findings, the company claimed input VAT based on transactions with suppliers that either did not exist or were not compliant with tax laws. 

The firm also failed to justify Sh187 million in bank deposits and was found to have underreported income while omitting employee benefit declarations. The court dismissed the company’s argument that it should not be held responsible for the compliance status of its suppliers, setting a crucial precedent on the obligation of due diligence in commercial operations.

Tax evasion of this nature carries heavy consequences for the economy. Public revenue is directly affected, limiting the government’s ability to provide essential services such as healthcare, education, infrastructure, and security. 

The practice also undermines fair competition, as businesses that evade taxes can offer lower prices, disadvantaging compliant enterprises and distorting the market. Beyond this, incidents of high-value evasion weaken public confidence in the tax system and risk encouraging wider non-compliance.

In a strongly worded judgment, the High Court stressed that tax compliance cannot be proven merely by producing an invoice or an ETR receipt. For transactions running into hundreds of millions, the court noted, there must be “verifiable footprints.” 

Companies must therefore support their claims with delivery notes, purchase orders, transport records, weighbridge tickets, stock records, and other documentation that reflects the true movement of goods.

“Commercial reality dictates that the movement of goods worth hundreds of millions of shillings leaves a footprint beyond a paper invoice,” the judge remarked.

The ruling is expected to serve as a powerful deterrent to fraudulent practices and reinforce the responsibility of taxpayers to maintain accurate records. 

It confirms the judiciary’s commitment to protecting public resources and safeguarding the integrity of the tax system. 

Ultimately, the decision affirms that tax compliance is not optional but a fundamental civic obligation essential for the country’s long-term economic stability.