KRA Uncovers Sh4.6 Billion VAT Fraud Scheme

The Kenya Revenue Authority (KRA) has uncovered a widespread scheme involving fraudulent invoicing and tax evasion, which has led to significant revenue losses for the government.

The revelation follows a probe into abuse of the Value Added Tax (VAT) system, particularly through non-remittance and manipulation of tax obligations.

In a stern response, KRA announced that disciplinary action including dismissal would be taken against any staff found culpable in the collusion.

To combat the abuse, the tax authority has initiated sweeping reforms aimed at tightening VAT administration.

READ: KRA to Begin Validating Income and Expense Declaration from January 2026

A key measure has been the drastic reduction of officers authorized to approve VAT obligations, from 645 to just 170. The move is intended to curb internal collusion and improve oversight.

KRA reports that more than 4,400 suspected shell entities have already been flagged.

Data shows that over 2,000 of these companies issued invoices worth Sh19.7 billion between July 2024 and March 2025 but either failed to file VAT returns or submitted nil returns. This potentially cost the exchequer over Sh2.1 billion in lost revenue.

Additionally, 2,354 firms filed VAT returns but failed to remit the taxes, resulting in a further Sh2.5 billion in potential losses.

The authority said the ongoing investigations aim to dismantle tax evasion networks while restoring integrity within the VAT system.