Kenya: ‘Kenya Losing Billions to Tax Havens’
The government has been accused of opening a loophole that allows super rich individuals and multinational companies to avoid taxes.
The Tax Justice Network (TJN), a lobby group, has sued the government over agreements, which it says are robbing Kenya of the ability to raise revenues domestically, driving the country to the brink of a financial meltdown.
The civil society wants Parliament to scrutinise avoidance of double taxation agreements (DTAs) between Kenya and various tax havens.
The public should also participate in the process, said the group.
The complaints are likely to resonate with taxpayers who will now have to pay more after the government increased excise duty on imported second-hand cars, cigarettes and processed juices.
The allegation also came as anxious MPs questioned National Treasury Cabinet Secretary Henry Rotich on the health of the economy and how the proceeds of the Eurobond were spent.
MAURITIUS TAX AGREEMENTS
Pointing out a similar agreement entered into between Kenya and Mauritius in 2012, the lobby said that the current agreement entered into by individual government officials was not representative of the country’s interests.
TJN wants the tax agreements structured in a manner that provides tax incentives to investors while also securing revenue for the country.
“Unlike with Mauritius, Double Tax Agreements (DTAs) with Uganda and Nigeria for example have specific provisions for withholding tax for management and technical services fees.
Kenya failed to negotiate any such provisions,” said TJN Executive Director Alvin Mosioma.
The deal between Kenya and Mauritius was signed by Finance minister at the time, Mr Robinson Njeru Githae and his Mauritius counterpart, Mr Xavier-Luc Duval.
TJN has already moved to court seeking orders to stop enforcement of the agreement with Mauritius until the deal is scrutinised by Parliament.
The agreement was to be effective starting January this year but has been put on hold pending hearing and determination of the TJN suit.
The case was mentioned Monday and will be heard on November 9 at the High Court.
The case is likely to affect hundreds of companies operating in Kenya and could save the country billions of shillings, especially at a time when the Treasury is struggling to raise funds.
Several multinational companies with subsidiaries in Kenya and Mauritius will be affected by the ruling.
Mauritius-based investment firm Alteo, this year announced plans to take up 51 per cent stake in Transmara Sugar Company Limited (TSCL) while Omnicane, also registered in Mauritius, has a 25 per cent stake in Kwale International Sugar Company Ltd (Kiscol).
Essar Energy Overseas Ltd — which bought 50 per cent share of Kenya Petroleum Refineries Ltd (KPRL) — was incorporated in Mauritius.
Waguthu Holdings (K) Limited — the company associated with the multi-billion shilling real estate project, Tatu City — is also owned by a parent company incorporated in Mauritius as MCIH.
Kenyan investment firm Centum also incorporated Centum Development and Centum Exotics, both based in Mauritius and meant to tighten its grip on the region.
The Flame Tree Group has trading subsidiaries in both the UAE and Mauritius that have very friendly taxation regimes on profits made by corporations as well as on capital gains.
Kenya has avoidance of double taxation agreements with several countries including India, France, Germany, the UK, Canada, Sweden, Norway, Zambia and Denmark.
Recently, the government also signed a DTA with the United Arab Emirates and Qatar, both which are considered tax havens.
TJN officials said Kenya loses over Sh112 billion ($1.1 billion) each year from tax incentives and exemptions especially to multinationals.
“This is the first time an African government is being challenged on these tax agreements with Mauritius, which has positioned itself as a conduit to deny countries taxes,” Mr Mosioma said.
Apart from Kenya, Mauritius has also signed Double Taxation Agreements with Congo, Zambia and Nigeria.
Currently Mauritius is negotiating DTAs with Algeria, Burkina Faso, Egypt, Gabon, Ghana, Malawi and Tanzania.
The government insists that the treaty will position Kenya as an investment destination into the East African economy, although analysts say it will consolidate Mauritius as a jurisdiction of choice for trade and investing into Africa.
Last week, the Kenya Revenue Authority admitted that it could not meet its targets due to declining labour force and poor performance by companies.
The taxman collected Sh167.6 billion in domestic taxes between July and September, which was Sh18.3 billion below the target of Sh186 billion.
KRA has in the past admitted that some firms had abused DTAs to avoid taxes.