How a Chinese firm set up Subsidiaries to avoid Paying Sh1 billion in taxes

The Kenya Revenue Authority (KRA) has filed a court petition to order the freezing of funds in three bank accounts held by various Chinese companies that were allegedly used to evade taxes totalling more than Sh1 billion over the course of the previous three financial years.

Four of the companies allegedly were formed to import goods from China, according to court documents filed by the taxman, but there is no proof of this, even though the aforementioned firms received money that was ultimately wired to China.

The KRA is asking the High Court to order the preservation of the funds held in the names of Hilalium & Sons (UR Home) Ltd, Weng Feng Trading Ltd, Youngchung Company Ltd, Can Feng, and Riba Will Trading Ltd at Equity Bank, I&M Bank, and Eco Bank.

“From the pleadings by the applicant herein, is evidence that taxes amounting to Sh1,051,134,858 has been evaded on account of income tax by the interested party herein.

It is, therefore, in the wider public interest that the assessment of the taxes and recovery thereof must be secured,” the taxman said in the petition.

According to the KRA, investigations have shown that Chinese companies generated revenue between 2020 and 2023 but did not fully and accurately report it by filing tax returns, resulting in under-declared revenue of about Sh1 billion.

According to court documents, Chinese nationals own the companies, but they do not have fixed homes or other assets that could be attached to recoup the taxes owed in the event that the claim is successful.

The KRA declared that it would raise and send tax assessments to the businesses for unpaid taxes.

According to reports, the taxman’s credit investigations revealed that Hilalium & Sons, other businesses, and individuals all deposited sales proceeds, primarily through M-Pesa Paybill.

“We analysed bank statements of these associated companies and established that various entities that were depositing monies into the accounts of these companies namely, Weng Feng Trading Ltd Riba Will Trading Company and Somba Importing Ltd were clients of Hilalium & Sons (UR Home) Ltd,” court documents stated.

In the event that the court determines that the businesses under-declared their taxes, the taxman requests that the court order the preservation of the funds in the bank accounts as security.

The documents also claim that Can Feng is a signatory on the other companies’ behalf on the bank accounts.

After failing to report the correct amount of income or sales for corporate and value-added tax for the years 2020–2023, Moses Ado said KRA believes the companies are involved in tax evasion.

He claimed that the company had not accurately or completely disclosed its income and that the corporate tax and VAT returns had been understated by Sh439.6 million and Sh611 million, respectively, according to KRA’s online filing system iTax.

“That in the circumstances, it is highly likely that the interested parties may frustrate the recovery of the taxes if funds held by the respondents in the account/name of the interest party are not preserved,” Mr Ado said.

Weng Feng Trading Ltd. was established for the purpose of wholesale and retail trade as well as auto repair, according to court documents.

Despite serving as managing directors for the business, Lin Lin and Cui Jingyi are described as non-filers.

On October 12, 2021, Riba Will Trading was incorporated and listed as a transport and storage company in the iTax system.

The two companies asserted that they had imported goods for sale, but according to KRA, there are no importation records dating back to when they were incorporated.