Kenya: Treasury Defends Controversial Mauritius Tax Agreement
Treasury is still fighting to keep a tax agreement out of parliament after a lobby group sued them over a pact it signed with Mauritius back in 2012.
The double taxation avoidance agreement allows firms registered in the two countries to pay taxes in only one country.
It also allows Mauritian companies owning at least a tenth of a Kenyan firm to pay withholding tax on dividends of only five per cent instead of the 10 per cent that applies to companies from other countries.
Tax Justice Network-Africa had sued the Government of Kenya in the High Court challenging the constitutionality of the Kenya-Mauritius Double Taxation Avoidance Agreement (DTAA) signed in Port Louis, Mauritius in May 2012.
Treasury Permanent Secretary Kamau Thugge in court papers a said the agreement was not subject to parliamentary scrutiny.
Dr Thugge said that the Double Tax Agreement (DTA) was not a treaty and was thus exempted from ratification.
“Agreements on avoidance of double taxation, investment promotions and protection agreements, and agreements on exchange of tax information do not require ratification by parliament,” Dr Thugge said.
He said that such bilateral arrangements only require a cabinet approval and gazzetement to bring them into force.
Tax Justice Network (TJN) had petitioned the court to annul the agreement arguing that it will deny Kenya crucial revenues as it will allow companies with presence in Kenya to declare returns in Mauritius where taxation is low or non-existent.
TJN says the agreement would see the companies pay less tax on dividends, capital gains, profits and royalties.
Draft DTAs have already been prepared for negotiation with Seychelles, Nigeria, United Arab Emirates, Spain, South Africa, Iran, Finland and Russia.
Under the DTAs, a firm or its subsidiary which has paid taxes to a host government cannot be asked to pay levies of similar nature on proceeds repatriated