Kenya makes strides in tackling illicit financial flow

As part of strategic effort to tackle cases of international tax avoidance and evasion, Kenya has joined the league of 93 global nations; united to address the economic vices and has now signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

The signing of the crucial agreement, last week, by the Kenyan Ambassador to France, Ms Salma Ahmed, in the presence of the Organisation for Economic Co-Operation and Development (OECD) Deputy Secretary General, Douglas Frantz, makes Kenya the 94th jurisdiction to join the most powerful multilateral instrument against offshore tax evasion and avoidance.  Speaking, when he addressed the Global Forum on Transparency and Exchange of Information for Tax Purposes, Steering Group Meeting in Paris, Kenya Revenue Authority (KRA) Commissioner General, Mr. John Njiraini, confirmed that the Tax Authority, is looking forward to the speedy ratification of the agreement.

The country, he said, has already made tremendous progress in strengthening local capacity for addressing international tax avoidance.   Such progress, he noted, includes KRA’s recent establishment of a formal structure to address International Tax Avoidance and to support Tax Information Exchange with other signatories of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

Further, Njiraini noted that the recent enactment of Tax Procedures Bill into law, now demonstrates the seriousness with which Kenya takes international tax avoidance.

The new law (Tax Procedures Act) imposes stiff penalties for engagement in international tax avoidance schemes. The penalty imposed can be as high as double the tax avoided.  Such a stiff penalty, Njiaraini explained, reflects Kenya’s desire to stamp out retrogressive practices, which multinational operators use to avoid paying their fair share of tax.   “At the end of the day, we do not see that there is any significant difference between straight tax evasion and abusive tax avoidance, which works to abnormally lower tax exposure,” he said.  In recent days, Kenya’s strengthened capacity has also enabled it to offer regional leadership on the recently concluded phase of the Base Erosion and Profit Shifting (BEPS) Project.  The Multilateral Convention on Mutual Administrative Assistance in Tax Matters, was developed jointly by the OECD and the Council of Europe in 1988 and amended in 2010 to respond to the call by the G20 to align it to the international standard on exchange of information and to open it to all countries, thus ensuring that developing countries could benefit from the new more transparent environment.

Since then, the Convention has become a truly global instrument. It is seen as the ideal instrument for swift implementation of the new Standard for Automatic Exchange of Financial Account Information in Tax Matters developed by the OECD and G20 countries as well as automatic exchange of country by country reports under the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project. It is also a powerful tool for the fight against illicit financial flows.

By signing the Convention, Kenya takes a further step in fighting tax evasion and avoidance, building on its participation in the Global Forum on Transparency and Exchange of Information for Tax Purposes, which it joined in 2010.