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New KRA, anti-counterfeit measures tighten up noose around tax evaders
KRA had first set a July 31, 2022 deadline for installation of the internet-enabled ETRs but twice extended it to September 30, 2022, and later to November 30, 2022.
New surveillance measures by the Kenya Revenue Authority (KRA) and the Anti-Counterfeit Authority (ACA) have triggered anxiety among business groups amid stepped-up purges on tax evasion.
From tracking the source of commodities imported into the country to real-time monitoring of business transactions, the noose is tightening on tax cheats.
In the latest move, all imports of highly counterfeited products including alcoholic beverages, pharmaceuticals, cosmetics, clothing, footwear, electronics, and electrical items will be subject to a new law that makes it compulsory to register the intellectual production rights (IPRs) on all goods to be shipped into Kenya starting January 1, 2023.
“All recorded IPRs shall be accorded proactive protection against counterfeit imports under the provisions of the Anti-Counterfeit Act” Robi Mbugua Njoroge, the executive director of ACA said.
The agency said the IPRs of all goods imported into the country will be mandatorily registered with it irrespective of their place of origin as part of a strategy to deal with rising trade in counterfeits in the country.
The changes introducing the mandatory recording of IPRs are contained in Section 34B of the Anti-Counterfeit Act, Legal Notice No.117, and Legal Notice No.118 of 2021.
The new IPRs registration requirement by ACA means it will be illegal to import goods into Kenya for commercial purposes if they bore a trademark, trade name, or copyright that is not recorded in the State agency’s database. Failure by importers to adhere to this requirement will result in prosecution and penalties.
According to the law, the penalty for a first-time offender is three times the value of the prevailing retail price of the goods while a subsequent offender will be penalized five times the value of the prevailing price of the goods.
A first-time offender is also liable to an imprisonment term not exceeding five years while a subsequent offender’s imprisonment term is a maximum of 15 years. This penal consequence is in addition to the ACA seizing and forfeiting for the destruction of the non-compliant imported goods.
Given the potential financial and criminal consequences, importers are pressed to ensure compliance.
Trading in counterfeits has become a multi-billion-shilling industry in Kenya, spanning all key sectors of the economy including car parts, alcoholic beverages and electrical appliances, medicines, building materials, baby foods, clothes, and cosmetics among others.
Under the new regulations, no IPR agent shall be eligible to perform any functions with ACA from January 1, 2023, unless they so admitted and registered. The ACA had earlier set a July 1, 2022 compliance deadline but gave an extension following disruptions linked to the August General Elections.
This comes as KRA added a majority of the large taxpayers to its internet-enabled tax registers(ETRs)—handing the State direct access to their real-time transactions.
An estimated 94 percent of large taxpayers had complied with the directive to fit the ETRs by the lapse of the November 31, 2022 deadline.
The tax registers will enable the KRA to receive real-time data on the daily sales of manufacturers and traders-- an upgrade from the current manual tax registers that store sales data for scrutiny by the KRA after 30 days.
Businesses with an annual turnover of at least Sh5 million are under the law required to have ETRs as the KRA seeks to seal revenue leakages from the big taxpayers. But even as KRA pushed for compliance, some traders are still reporting teething software problems with the ETRs machines.
The regulations are designed to heighten KRA’s visibility of transactions for purposes of sealing revenue leakages that result in underperformance in tax revenue collection.
According to data from the National Treasury, Kenya foregoes an average of Sh383.9 billion worth of would-be tax revenue every year, with VAT accounting for the lion’s share of this revenue leakage at Sh 314.7 billion or just about 82.0 percent of the total amount. This explains why the government is emphasizing the visibility of transactions subject to VAT as it looks to ramp up collections.
Over the last five financial years, KRA has collected an average of Sh 407.7 billion worth of revenue through VAT, 54 percent or Sh 219.4 billion of which is attributable to domestic sources with the remaining proportion attributable to VAT on imports.
KRA had first set a July 31, 2022 deadline for installation of the internet-enabled ETRs but twice extended it to September 30, 2022, and later to November 30, 2022, after traders registered challenges with accessing the required gadgets.
Manufacturers and traders who fail to upgrade to ETRs at their business premises risk a fine of Sh1 million or a jail term of three years.
