Kenya to investigate a $28m British American Tobacco tax ‘discrepancy’

The Kenyan Revenue Authority (KRA) on Wednesday, 20 February 2024, announced it would investigate evidence of a $28-million tax discrepancy involving British American Tobacco Kenya’s (BAT Kenya) declared profits between 2017 and 2018.

Analysis by the University of Bath’s Tobacco Control Research Group, the Investigative Desk, and Tax Justice Network Africa, has shown a 9.6-billion Kenyan shilling ($93-million) discrepancy for which “the company did not provide a plausible explanation”.

The Bath study conducted an analysis of six years of BAT Kenya annual reports compared with production data the company had supplied to KRA. What they found indicated “a massive discrepancy of millions of cigarettes between what the company produced and said it sold”.

Authors Tim Luimes, Mirjam van der Puijl and editor-in-chief Marcel Metze concluded this “could indicate tax avoidance or evasion of up to 28-million USD in profit tax”.

The Bath University report noted that the discrepancy resulted in the revenue of BAT Kenya “being substantially lower than what it could have earned based on what it produced. But what exactly happened to these millions of cigarette packs, remains a mystery”.

Taxing Kenyans

In 2023/24, young Kenyans protested over a controversial new Bill proposing an increase in an array of personal taxes and levies. Mass protests, initially sparked in the capital, Nairobi, soon spread across the country.

Author Job Mwaura, a postdoctoral researcher at the Wits Centre for Journalism, noted that the protests had united Kenyans around issues that affected their daily lives.

“This new form of activism reflects a growing political maturity among Kenyans, who are prioritising shared concerns over ethnic divisions. It sets a new precedent for addressing social and political issues in the country.”

Read more: Gen Z shows the power of digital activism on the streets of Kenya

It was in this light, then, that the authors of the study said the evidence should be considered not in isolation as “aggressive tax avoidance”, accounting for “a worldwide government revenue loss of around 100 to 240 billion USD, according to an estimation by the Organisation for Economic Co-operation and Development – around 4% to 10% of total corporate profit tax revenue”.

Developing countries were hit “ ‘disproportionally’ by these practices due to their higher reliance on corporate profit tax”. 

Kenya is regarded, like South Africa, as a middle-income country and continues to struggle with budget deficits and ballooning debt.

BAT Kenya responds

The Tax Justice Network Africa was founded in 2007 and is a Pan-African civil society network dedicated to issues of tax justice.

The Investigative Desk, a group of specialised investigative journalists who focus on a variety of areas in the corporate realm, including big tobacco, sent a list of questions to BAT Kenya before publication.

A BAT Kenya spokesman replied and “firmly rejected all allegations made”, adding that the company “pays all taxes in line with applicable laws”.

This has been a standard response across the years to allegations of tax evasion.

The KRA did not initially respond to “multiple inquiries” by the Investigative Desk about the findings, but a 19 February statement said it “takes these allegations seriously”.



The statement said the revenue service was “committed to upholding the integrity of Kenya’s tax system. We are currently reviewing the findings of the report and will take appropriate action”.

It said it appreciated the role of independent research organisations “in promoting transparency and accountability”.

The BATSA debacle 

In September 2021, Bath University, the London-based Bureau of Investigative Journalism and the BBC exposed how BAT had funded a network of almost 200 informants in South Africa.

https://www.youtube.com/watch?v=i4eH-MLIsc8

 

Whistle-blowers Francois van der Westhuizen and Pieter Snyders, both former employees of the private security company Forensic Security Services (FSS), contracted by BAT to run the company’s “dirty tricks” in South Africa, provided ample evidence of this.

Customs officials and police officers were bribed in Kenya, Rwanda and Burundi to allow BAT to spy on its rivals, as also revealed in 2015 by Paul Hopkins, who worked for the company for 13 years.

Under the UK’s Bribery Act (2011), British companies may be prosecuted for bribery carried out by employees or agents anywhere in the world if they fail to take steps to prevent it.

There is a belief that these activities were condoned by BAT London, and there is also ample evidence, including that Belinda Walter, the SA attorney who worked as a triple agent for BAT, was on the company’s books.

Read more: BAT’s UK headquarters oversaw and financed a South African corporate spy ring

Read more: SARS Wars: ROGUE – reclaiming the narrative from the inside out

It later emerged that Walter had also been employed by one of KPMG’s senior managers in the forensic unit, Alan Few, the unit which compiled the now discredited “SARS Rogue Unit” report which cost many senior officials their careers.

Former SARS commissioner Tom Moyane appointed KMPG in 2014 to investigate the alleged “rogue unit”, allegations initially made by Walter and later revealed in the Sunday Times, which later retracted its articles.

Walter had a short-lived relationship with then SARS head of the High Risk Investigative Unit, Johann van Loggerenberg. The events which followed cost him his job in a unit which had scored significant success in combating tax evasion in big tobacco and other economies.

‘Possible profit shifting’

Authors of the South African report, Andy Rowell and Alon Aviram of the University of Bath’s Tobacco Control Research Group, said “there were consistent questions regarding BAT’s tax affairs in the country [South Africa]”.

“In 2017, SARS demanded 214 million Rand from BAT’s South African subsidiary, British American Tobacco South Africa (BATSA), for unpaid excise duties. 

“A year later, SARS demanded 143 million Rand from BATSA in unpaid excise duties. BATSA disputed the payments and did not mention any outstanding South African liabilities in its latest Annual Report,” the authors noted.

Van Loggerenberg, commenting on the new report, said it demonstrated “indicators of possible base erosion and profit shifting activities by BAT in Kenya”. 

“Taking into account the track record of the company over decades in many countries, it can be safe to say that these red flags beg for a proper audit of the business,” he said.

Van Loggerenberg, now a tax avoidance and evasion expert and author of several books, recommended that a tax audit by the KRA and the British HM Revenue and Customs, “and preferably in cooperation with each other”, take place. 

“This should not be just directed at Kenya, but on a worldwide level there is a fine line between base erosion and profit shifting and fraud”. DM