Kenyan companies can no longer bank on tax avoidance

A Kenya Revenue Authority official examines one of the high-end cars presented at Kenya Railways Club grounds on May 17, 2016 for inspection. A suspect behind the tax evasion racket was arrested. PHOTO | FILE | NATION MEDIA GROUP

What you need to know:

  • Companies that are in reality Kenya-based can register in other countries with lower taxes, and pay them there.

Tax avoidance is a global issue about which we simply cannot remain silent. In 2015, investigative journalists unearthed the Panama Papers, a collection of some 11.5 million documents explaining how over 200,000 firms all over the world use offshore accounts and shell companies to avoid paying taxes in their home countries.

The consequences of civilians and companies not paying taxes in any country are dire. The lost revenue could cost the country billions in annual budgets, resulting in the inability to provide citizens with public service programmes, adequate education, quality infrastructure, reasonable healthcare, etc.

TAX REVENUE

In developing countries, such as Kenya, collecting tax revenue is especially important to development initiatives. We cannot be reliant on foreign aid to provide us with funding for government programmes.

Kenyans cannot expect to live in a middle income country but not to contribute a fraction of their taxes to the Kenya Revenue Authority (KRA). But despite this, sometimes it seems like in addition to football and running being Kenya’s most beloved sports, tax avoidance is also a national sport.

However, as with most forms of corruption, the people reaping the benefits are the ones who are already wealthy.

Those who suffer the most, and would benefit the most, are those that have little money to begin with, and little opportunity to overcome poverty.

Recent news reports have established that hundreds of Kenyan business people use legal manipulation in order to avoid paying taxes here. While the practice might not be completely illegal, it is in a grey zone.

Companies that are in reality Kenya-based can register in other countries with lower taxes, and pay them there. Now, I have nothing against Mauritius but why should a Kenyan company pay 15 per cent of its profits in taxes there instead of the reasonable and standard KRA rate of 30 per cent?

PROFITS

These companies amass profits in the billions of shillings, and line the pockets of the top levels of management. But as this phenomenon becomes increasingly well known in the public discourse, our authorities are beginning to change the reality. It begins with the government’s anti-corruption campaign.

Problems with graft and bribery are no secret here, and they are a blight on our national culture.

The Organisation for Economic Cooperation and Development (OECD) estimates that during the 2018-2019 financial year, it is possible that Kenya lost up to Sh144 billion in tax revenue due to tax avoidance.

This number seems unfathomably large and is very frustrating, but it is sure to decrease during the 2019-2020 financial year due to the general culture of zero tolerance for dishonesty that has emerged from the anti-corruption campaign.

According to the KRA’s deputy commissioner for corporate policy, they are changing tax laws so that “shell companies of firms doing business without a local presence have their (tax) issues addressed comprehensively.'' Kenya will take part in the Multilateral Instruments (MLI) treaty, which enables governments and revenue authorities to limit tax avoidance tricks by companies based in any of the participating countries.

TAX AVOIDANCE

Global partnerships are key to cracking down on tax avoidance because it is a truly global problem.

In this era of global connectivity and technology, corporate thieves are constantly finding new ways to earn greater profit at the expense of regular working citizens.

The MLI helps to guarantee that abusers of lenient tax laws or legal grey areas are brought to justice and can no longer operate with impunity.

When trust is lacking, the legal system must be used to shape ethical business practice. As the national sport of tax avoidance becomes a less and less attractive option for corporate thieves who come to understand that they will face heavy fines or even jail time, the practice will become a thing of the past.

Sammy Kwinga is a political scientist. [email protected]