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Kenya Revenue Authority (KRA) investigators have raided offices and warehouses belonging to the local agents of the world’s largest cigarette producer from China, as part of a preliminary probe of suspected tax fraud.
The probe targets the local agents of Chinese state-owned China Tobacco, which feeds the Kenyan market with Septwolves and Harmonization brands out of its over 900 products that generated sales of $210 billion (Sh27.1 trillion).
A KRA official confirmed to the Business Daily that there have been more than two raids on the Nairobi business premises of Yulees Blooms Company Ltd and Shapo Trading Ltd in Kilimani and on Mombasa Road, the most recent being in October.
The officers were from KRA’s Investigations & Enforcement unit, which pursues high-stakes white-collar fraud.
A preliminary investigation does not imply criminal charges and does not necessarily lead to a trial.
The KRA investigation follows a whistleblower report that Shapo Trading has been declaring lower purchase prices for its imported products, allowing the firm to pay lower import duty for their shipments, according to investigators who spoke to the Business Daily.
Consumption of cigarettes made in China in the Eastern Africa region has been on the increase following the spread of Chinese nationals in Kenya, with some trying to earn a living selling goods in corner shops.
The KRA did not respond to a request for comment on the probe amid claims of collusion between the firm and officials at the authority.
To shore up revenue, President William Ruto’s administration has deepened its crackdown on tax cheats and it is expected to be more aggressive following withdrawal of this year’s Finance Bill after the deadly protests in June and July that killed over 50 people.
All three mobile phone numbers that the two Chinese-owned companies listed in their contact details to the Business Register Services (BRS) were switched off.
On Monday Liu Yuhang, director of Shapo Trading, asked that we send him questions on text, but he did not respond. He neither picked calls nor responded to text messages on Tuesday.
“Section 6 of the Tax Procedures Act 2015 provides that information obtained in the course of administering tax laws is confidential and hence cannot be shared with third parties without the express consent of the person to whom the information relates,” said KRA in an e-mail response on Wednesday.
A top official at the KRA reached out to this writer promising to set up a meeting with a manager at Shapo Trading after the Business Daily sent questions to the Chinese cigarette firm.
Shapo Trading imports mainly two cigarette brands – Septwolves and Harmonization – into Kenya. Some of the products are then transported to Uganda and Tanzania.
Yulees Blooms is the local sales agent, which distributes the imported products and ships part of the consignment to the other two East African countries.
KRA agents visited Shapo Trading’s office at Galana Plaza in Kilimani on October 18, and perused several documents while looking for evidence.
On October 22, the taxman’s agents visited a Shapo Trading warehouse along Mombasa Road as part of the investigation.
A KRA official, who requested not to be named, said the taxman recently held a formal meeting with the two companies to discuss the tax evasion allegations, which Shapo Trading and Yulees Blooms denied.
The taxman was pursuing whistleblower reports indicating that Shapo Trading had been declaring the purchase price of each carton of Septwolves at a discount of $278 (Sh35,000).
For the premium Harmonization brand, Shapo Trading has been declaring the cost at lower than the quoted price of $1,900 (Sh245,000), said the whistleblower.
The two brands are manufactured by China Tobacco, which enjoys a monopoly in the East Asian country by controlling over 90 percent of the cigarette market.
China is bucking the global smoking trend as cigarette sales surge in the country, fuelled by China Tobacco—which has expanded its global reach to over 20 countries via sales offices and manufacturing plants.
Business Registration Service records show that Shapo Trading was incorporated in February, 2023 and is owned by Double Lucky Investment Company Ltd.
Double Lucky Investment Company was incorporated in November, 2021 and is wholly owned by Yuhang Liu, a Chinese national.
Mr Liu is also the sole director of both Shapo Trading and Double Lucky Investment Company.
Yulees Blooms Company is wholly owned by Yulan Lei, another Chinese national. Mr Lei is also the only director of Yulees Blooms.
Felix Kikuyu Kimoli is listed as the company secretary in both Shapo Trading and Yulees Blooms.
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