Forensic investigations have unearthed how three fraudsters engineered a massive tax fraud through fictitious electronic invoices worth about Sh42 billion over five years, exposing the Kenya Revenue Authority (KRA) to about Sh4 billion in fake value-added tax (VAT) claims.
Investigators told the Business Daily that the trio created accounts on KRA’s electronic business invoicing platform, eTIMS, through which 62,869 fake invoices were generated. They then used the dud invoices to claim VAT refunds from the taxman between 2020 and 2025.
A total of 72 companies used the fraud scheme, with conspirators claiming to have purchased goods from them worth Sh25.07 billion, with corresponding VAT of Sh5.37 billion, resulting in VAT claims of approximately Sh3.99 billion.
“The three fraudsters were basically generating fake sales invoices and selling them to entities out there to help lower their tax obligations or make claims for VAT refunds,” an investigator told Business Daily.
The three fraudsters charged a commission of an average of 1.5 percent on the value of each of the generated invoices. This means that a fake invoice for Sh100 million in sales, for example, earned them a commission of Sh1.5 million.
A digital forensic analysis blew the lid off the scam after investigators established linkages between the VAT claims firms and telephone numbers, and mobile devices of the three fraudsters who churned out the thousands of invoices.
The probe also established that several of the firms generating invoices did not have genuine business activity, and some did not even exist physically.
“In most instances, the physical addresses provided by the VAT claims firms did not exist, and even in some cases, some of the listed officials and directors were not aware that their identities had been added in the ownership information,” an investigator said.
“In fact, the entities generating the invoices did not undertake genuine business activities. Several were nil or non-filers for VAT, did not file income tax returns, has no pay-as-you-earn obligations despite the scale of transactions attributed to them,” the detective added.
Investigators also identified multiple instances where some KRA staff facilitated the fraudulent transactions. Most of the firms caught in the scam operate in key economic sectors, including construction and electrical and electronics.
The probe triggered a swoop, with the Office of the Director of Public Prosecutions (ODPP) approving the prosecution of the initial batch of 37 people caught in the underhand deals, including the three fraud masterminds.
The first batch of suspects to be arraigned are suspected to have triggered about Sh518 million in VAT claims losses from a purported Sh3.2 billion purchases.
The suspects are expected to be arraigned this morning as investigations continue. Confidential correspondence by the ODPP revealed that the suspects, who include company directors, will be charged with offences including fraud and aiding others to commit crimes under the tax law.
Mohamed Abdul M’maka, the Commissioner for Investigations & Enforcement at KRA, confirmed the scandal when contacted by the Business Daily.
“Unfortunately, this happened, but I’d wish to advise businesses that knowingly purchase, accept or use fictitious invoices to support illegitimate input VAT claims that they will not get away with it. Such companies are not merely beneficiaries of a tax arrangement but are also participants in tax fraud and therefore liable to criminal and civil sanctions as prescribed by the law,” he said.
“We are deploying eTIMS intelligence, data analytics, digital forensics, financial investigations and inter-agency cooperation to identify artificial transactions, trace the beneficiaries and facilitators behind the VAT fraud and recover the money lost through such schemes,” M’maka added.
Insiders at KRA told Business Daily that the scam has triggered a shake-up of the eTIMS operations, with the taxman now rejecting all unsupported input VAT claims and disabling devices. Businesses flagged under the system are effectively locked out of filing VAT returns through the iTax portal, making compliant companies reluctant to trade with them because they cannot claim input VAT or offset VAT paid on purchases against output tax.
As part of a strategy to prevent fraud on the eTIMS, KRA early this year said it was deploying a technology that locks electronic tax invoices to specific locations to curb fraud estimated at up to Sh30 billion annually.
The taxman has piloted georeferencing technology whereby the electronic invoices generated on the eTIMS are assigned geographic coordinates to map transactions with the locations where they take place.
The KRA said georeferencing would help it deal with a surge in fictitious invoices, even as taxpayers rushed to comply with income and expense validation for 2025. Several countries, such as Germany, Switzerland, Brazil, and the Netherlands, already deploy georeferencing in taxation in areas such as land, infrastructure billing, and property valuation, among others.
To further strengthen efforts to catch persons engaging in eTIMS invoice fraud, the KRA said that it is also working on enabling the eTIMS portal to capture and track one’s stock of goods so as to ensure that eTIMS invoices issued align with one’s goods levels.
KRA is under pressure to improve its collection performance amid a shaky economy which has impacted businesses. This situation presses the taxman to seal loopholes that trigger revenue leaks.
A new report by the National Treasury showed that KRA posted a Sh58.2 billion revenue shortfall in the first quarter of the current 2026/27 financial year. The ordinary revenue growth, however, improved compared to last year.
Ordinary revenue collections, which cover both tax and non-tax revenues, were recorded at Sh655.8 billion, 14.4 percent for the three months to September, higher than the Sh573.5 billion collected in a similar period in 2025, according to data from the National Treasury.
In contrast, domestic revenue collection significantly recovered compared to the previous year when ordinary revenue receipts contracted by 2.9percent.
The revenue underperformance in the open quarter signals idealistic tax targets, as the taxman persistently misses the mark despite mostly recording growth in receipts.
