KRA moves to end VAT fraud and curb staff collusion

The Kenya Revenue Authority (KRA) has launched a crackdown on Value Added Tax (VAT) fraud, targeting the notorious “missing trader scheme” and reinforcing internal controls to curb staff collusion. The initiative is a response to staggering monthly revenue losses due to fictitious invoicing and tax evasion.

The “Missing Trader Scheme” involves fraudsters registering shell companies to generate fake VAT invoices, enabling illegitimate tax deduction claims without any actual business transactions. These entities often disappear before remitting any VAT, depriving the exchequer of billions in revenue.

 KRA has now instituted stringent reforms to counter this scheme, including tighter VAT registration protocols. Physical verification and thorough due diligence are now mandatory for new applicants.

Additionally, the authority has reduced the number of officers authorised to approve VAT obligations from 645 to 170, significantly narrowing the window for internal collusion.

In a major cleanup effort, KRA is reviewing the VAT status of 90,127 entities. Over 20,000 inactive taxpayers have been slated for deregistration to prevent fraudsters from exploiting dormant companies. The remaining entities are under assessment for dormancy or suspension.

KRA’s data-driven investigations have flagged 4,434 suspected “missing traders.” Of these, over 2,000 entities issued invoices worth Sh19.7 billion but failed to file or filed nil returns since July 2024, posing a potential VAT loss of Sh2.1 billion. Another 2,354 traders ="https://www.standardmedia.co.ke/business/business/article/2001515784/manufacturers-seek-policy-changes-to-unlock-sh15b-unpaid-vat-refunds">filed VAT returns< between January and March 2025 without remitting taxes, resulting in an additional Sh2.5 billion in unpaid liabilities.

All flagged traders have been placed on a special monitoring table, effectively preventing fraudulent claims tied to their invoices. The taxman has also homed in on high-risk sectors. Several companies supplying Kenya Power and those involved in sugar imports have been found to declare VAT obligations without making payments.

 “One such group alone owes Sh1.1 billion in outstanding taxes. Despite formal notices, some of these firms have resisted compliance, resorting to threats and intimidation.”

Recognising internal collusion as a contributing factor, KRA is strengthening internal oversight and intensifying collaboration with its Investigation and Enforcement Department in measures aimed not only to deter future fraud but also to rebuild public trust in the integrity of the tax system. “Staff found to be collaborating with tax evaders will be apprehended”

“By tightening VAT registration, cleansing the taxpayer roll, and aggressively pursuing defaulters, we are entering a new era of tax accountability and revenue protection,” said a KRA spokesperson. “This crackdown is both a technical and ethical ="https://www.standardmedia.co.ke/business/business/article/2001495226/banks-warn-vat-on-transactions-could-damage-kenyas-economy">recalibration of tax administration< in Kenya, one that is essential for sustainable public finance.”

KRA reaffirms its commitment to upholding transparency, accountability, and equity in revenue collection as part of its broader mandate to support national development.