Kenya has signed a global tax deal that will help to crackdown on multinationals and individuals keen on evading taxes and curtail the use of tax havens.
The law will make it harder for multinationals who concentrate their taxes in low-tax countries and tax havens thereby denying regular countries their share of tax revenues.
Kenya’s Ambassador to France Salma Ahmed, signed the Convention in the presence of the Organisation for Economic Cooperation and Development (OECD) Deputy Secretary General, Douglas Frantz committing to exchange of information that would help governments to collect revenue domestically.
Kenya becomes the 12th African country to sign the Convention and the 94th jurisdiction to join it.
“This is part of our commitment to reduce the scope of tax avoidance and evasion through up-scaling use of electronic data matching and third party information,” Kenya Revenue Authority (KRA) Commissioner General John Njiraini wrote to the Nation.
The convention will not only make it possible to reveal the names of tax evaders, but also make it easier for the government to pursue them within and outside the country.
The agreement is the most comprehensive multilateral instrument available for all forms of co-operation to tackle tax evasion and avoidance.
It provides for exchange of information on request, spontaneous exchange, automatic exchange, tax examinations abroad, simultaneous tax examinations and assistance in tax collection.
DRIVING UP LOCAL TAXES
According to the report from the Independent Commission for the Reform of International Corporate Taxation (ICRICT), released late last year, tax abuses by global corporations are driving up local taxes and siphoning trillions from the developed world.
“When corporations do not pay their fair share of tax in developed countries, essential public services and infrastructure spending are cut, and the tax burden is shifted onto ordinary citizens, usually in the form of regressive consumption taxes such as value-added taxes (VAT),” the report reads.
Kenya has also enacted a Tax Procedures Act giving KRA powers to investigate pricing arrangements between local units of multinationals with their parent companies and overturn any that it deems to have been structured with the intention of avoiding tax.
This comes as KRA was reported to have missed its half-year revenue-collection targets by Sh47.6 billion, according to a draft budget policy statement by the Treasury.
The twin moves however leave Treasury in an awkward position over some bilateral agreements that are seen to promote tax avoidance.
Treasury is fighting in court to keep a tax agreement out of parliament after a lobby group, Tax Justice Network-Africa, 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.
However, the Indian Ocean country is regarded as a tax haven because income tax is at a maximum of 15 per cent while Kenya’s is 30 per cent.
KRA has been on record admitting that some of the DTA’s have been abused by some of the companies to avoid the taxman.
Due to the exploitation of the current transfer pricing regime (transaction between related firms located in different States), Kenya has been losing billions of shilling.
Naivasha based Karuturi firm sold flowers directly to Europe although according to its records, it was selling them to a subsidiary in Dubai first at very low prices.
The International Monetary Fund researchers suggest that poor countries are losing as much as Sh20.4 trillion (USD212 billion) a year to tax avoidance by multinationals.