By Kenya Confidential Economic Affairs Correspondent, Washington DC – October 9, 2018
New Study Shows Kenya Trade Misinvoicing Leads to Significant Revenue Losses. Misinvoicing of Imports and Exports Approaches 1/4 of all Trade Transactions
Analysis of trade misinvoicing in Kenya in 2013 shows that the potential loss of revenue to the government was Ksh 91,489,090,000 ($907 million) for the year, according to a new study by Global Financial Integrity.
To put that figure in context, this amount represents eight percent of total annual Kenya government revenue as reported to the International Monetary Fund. Put still another way, the estimated value gap of all imports and exports represents approximately 23 percent of the country’s total trade.
The report, titled Kenya: Potential Revenue Losses Associated with Trade Misinvoicing, analyzes Kenya’s bilateral trade statistics for 2013 (the most recent year for which sufficient data are available) which are published by the United Nations (Comtrade). The detailed breakdown of bilateral Kenyan trade flows in Comtrade allowed for the computation of trade value gaps that are the basis for trade misinvoicing estimates.
Import gaps represent the difference between the value of goods Kenya reports having imported from its partner countries and the corresponding export reports by Kenya’s trade partners. Export gaps represent the difference in value between what Kenya reports as having exported and what its partners report as imported.
Revenue lost due to the misinvoicing of imports in 2013 was Ksh 77,436,320,000 ($767 million). That is more money than the Kenya government intended to raise from 16 per cent VAT on automotive fuels and paraffin that was later halved to 8 per cent.
The lost revenue can be further divided into its component parts: uncollected VAT tax Ksh 32,711,040,000 ($324 million), customs duties Ksh 23,119,840,000 ($229 million), and corporate income tax Ksh 21,604,798,000 ($214 million).
Lost revenue due to misinvoiced exports was Ksh 14,133,980,000 ($140 million) for the year which is related to lower than expected corporate income and royalties. A lot more has been lost in the intervening years since 2013 that could have gone a long way in plugging the gaping national deficit.