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By Steve Umidha
The Kenyan government through the National Treasury has been cautioned against signing double taxation agreement (DTA) with Singapore, with mounting concerns urging due diligence on those plans.
Tax Justice Network Africa (TJNA) and the East African Tax and Governance Network (EATGN) Wednesday cautioned the Government of Kenya (GOK) in its pursuit of new double taxation agreements (DTAs) with the Government of Barbados and Government of the Republic of Singapore.
“There is a need to evaluate both tax treaties in relation to how they are likely to negatively affect Kenyan tax law. A cost benefit evaluation on the desirability of the Barbados and Singapore tax treaties as specified in the Treaty Making and Ratification Act of 2012 (TMRA 2012) is necessary,” said TJN’s Executive Director Alvin Mosioma.
Owing to the fact that Singapore is globally ranked as the 8th most aggressive tax haven allowing for extensive avoidance and evasion of taxes from other jurisdictions around the world, Mosioma noted that having DTAs with both countries doubly places Kenya at risk of eroded tax revenues in a time of
increased debt strain.
In a 10-page memorandum by an advocacy group TAX AND INEQUALTY-KENYA, the association says such a decision could expose the country into future revenue losses if it is to be ratified in its current form and has called for an exhaustive scrutiny into the impending tax treaty with the Asian Island country to avoid foul play by State officials.
“It is important for Kenya and its citizens to be extra vigilant, do social audit, and have a very thorough examination of the Double Tax Agreement (DTA) between Kenya and Singapore before approving and ratifying this treaty,” said Julius Okoth, the organization’s spokesperson.
Treasury Cabinet Secretary Ukur Yatani last month issued a general notice requesting public comments on the pending income tax treaties with Barbados and Singapore, which were signed on December 7, 2019 and 12 June 2018, respectively.
The notice dated July 13, CS Yatani asked those submitting such comments to do so in writing by August 17, if they are to be considered – with the comments, also known as public participation, hoped to ensure income earned in any of the three countries is not subject to double taxation.
“The Government of Kenya wishes to enter into respective Agreements for the Avoidance of Double Taxation with respect to taxes on income (DTA) with the Government of the Republic of Singapore and the Government of Barbados. The National Treasury and Planning is spearheading the process on behalf of the Government of Kenya,” he said in a statement.
But that process – of public participation according to the advocacy group, is being used as a formality procedure meant to dupe Kenyans while robbing them of a critical decision which has direct impact on their taxes.
“Citizen’s participation in Kenya has often been treated and reduced to formalities by duty bearers, as just a process, or an event of massaging the ego of citizenry that their views and recommendations have been heard. We hope our views and recommendations on the Double Tax Agreement (DTA) between Kenya and Singapore will be put into consideration and acted upon,” reads a statement from TAX AND INEQUALTY-KENYA, dated August 17, 2020 and copied to CS Yatani.
The group further claims that the unclear tax treaty between the two countries could also expose Kenya into what is known as Offshore Indirect Transfer, ordinarily meant to prevent the collection of Capital Gain Tax (CGT).
It also argues that shrewd business people and powerful politicians including government officers could use the technique (Offshore Indirect Transfer) to set up multinational companies and offshore accounts in Singapore for fraud and illegal business dealings.
CGT is tax charged on gains arising from sale of property and is legally charged at 5 per cent of the net gain is not subject to further taxation after payment, which is considered final.
The taxation treaty between the Kenyan government and Singapore will be applicable on income tax and corporate tax.
The current corporate tax rate applicable in Kenya is 30 per cent in the case of resident corporations such as limited liability companies – while a non-resident company with a permanent establishment in Kenya is taxed at 37.5 per cent.
An expatriate, who is resident in Kenya is liable to pay income tax – often charged at 30 per cent. An expatriate, who is not resident in Kenya, but who is employed by a person who is resident in Kenya or by a permanent establishment of a nonresident is also liable to income tax.
If signed, the treaty will bring to over 21 the number of countries Kenya has signed avoidance of double taxation agreements (DTAs) whose aim is to ensure efficient administration of tax as well as promote investments in both countries.
Other reasons why countries also enter into a treaty include eliminating tax evasion and illicit financial flows, which is meant to improve certainty for taxpayers and tax authorities in their international dealings.