How Kenya loses Sh90 billion through harmful tax treaties

By Moses Michira

Mauritius is among the countries helping companies operating in Kenya evade paying taxes, a lobby of civil societies says. The societies blame the Indian Ocean island State for the soaring taxation on the ordinary Kenyans through heavy consumption taxes such as value added tax (VAT), because big companies were not paying up.

Multinationals registered in the offshore jurisdiction, however, are either paying little or no taxes to Kenya despite making huge profits here through ‘harmful’ agreements reached between the two countries.

“Double Taxation Treaties have turned into ‘double non-taxation’ tools, easily exploited by multinationals who engage in ‘treaty shopping’ to get a better deal. These deals often are at the detriment of the underdeveloped and developing nations in Africa. Sadly Mauritius is Africa’s own ‘tax haven’ and part of the problem,” the lobby, made up of ten civil societies from three East African countries says in a statement.

Inequalities

The lobby is now seeking a review of the tax treaties entered with countries such as Mauritius, which are estimated to cost Kenya over Sh94.6 billion ($1.1 billion) in revenues every year.

Several multi-billion shilling worth indigenous business in Kenya’s financial services sector are owned by parent companies domiciled in Mauritius, with the main aim of cutting on their tax obligations to Kenya — where corporate taxes are levied at 30 per cent.

“While large multinational companies are receiving tax incentives and not paying their fair share of tax, citizens are bearing a disproportionate tax burden due to an over reliance on consumption taxes, such as VAT on essential goods, in revenue collection. Consequently, as citizen’s lives get more expensive, poverty is increased, inequalities are exacerbated and welfare is reduced,” read the petition further.

Kenya is also exposed to leakages in taxes through other harmful incentives including tax holidays for new investors in specific sectors and in export processing zones. The civil societies claim that the tax holidays were not achieving the intended goals of attracting investors, and that there was empirical evidence to support their assertion.

The 16 members are: Centre for Governance and Development/National Taxpayers Association, Institute of Economic Affairs, Tax Justice Network-Africa, Society for International Development, the Africa Bureau of Tax Policy and Law, BEACON, Christian Aid, Center for Governance and Integrated Trade, Panos Eastern Africa, Africa Safari Radio, the Africa Bureau of Tax Policy and Law and Kenya Debt Relief Network (KENDREN). Others are the International Institute for Legislative Affairs Kenya, Institute for Economic Affairs Kenya, Citizen’s Assembly, Transparency International Kenya, Tax Justice Network–Africa, and ActionAid International Kenya.

Financial centre

“Research findings backed by investors, international financial institutions and civil society organisations, demonstrate that companies do not consider tax breaks as their primary reason for investing in a country,” Alvin Mosioma, a director at Tax Justice Network-Africa said. 

Mr Mosioma’s organisation is also opposed to a proposal by the National Treasury to set up an international financial hub in Nairobi, arguing that it would be exploited by the wealthy to dodge taxes. Businesses registered within the proposed financial centre would enjoy preferential tax treatment, as is the case in Mauritius, Jersey Island and London — among other hubs globally.

The societies presented the petition to the Seventh Joint Annual Conference of African Ministers of Finance, Planning and Economic Development and AU Conference of Ministers of Economy and Finance in a meeting in Abuja, Nigeria.