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Tax dodging by big firms ‘robbing’ Kenya Sh55.1Bn yearly

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By Steve Umidha

Kenya is losing an estimated Sh55.1Billion in corporate tax every year from multinational companies abusing the law to shift their profits into the UK, Switzerland and Luxembourg, a new study by a global advocacy group reveals.

The Tax Justice Network (TJN) report revealed for the first time the extent of the resources being lost, placing Kenya among top African countries exposed to the vice. The continent losses over $25Billion yearly mostly from corporate tax abuse.

Only Nigeria – a notoriously corrupt country, is ahead of Kenya with an estimated Sh1.1Trillion in corporate tax losses the West African country is leaking to the deadly vice which is being aided by its crooked leaders.

The report released on Friday also found that tax abuse by multinational companies and avoidance by rich individuals was costing global countries over $427Billion a year in lost revenues, significantly hampering their economic growth.

“The State of Tax Justice 2020 finds that higher income countries lose more direct tax revenue to corporate tax abuse ($202 billion lost each year) than lower income countries ($43 billion lost each year). The World Bank classifies countries on the basis of gross national income per capita as either low, lower middle, upper middle or high income,” reads the report in part.

Corporate tax rates in practice in the UK, Switzerland and Luxembourg – well known tax havens range from 10 per cent to 0.8 per cent – markets where Kenyan elites stash their stolen public funds. Mauritius and Dubai are also target markets for the corrupt.

Tax evasion is illegal but companies – especially those with global presence chose to reduce their bills by moving profits through countries or territories with lower taxes, including those with close legal ties to Britain like Kenya.

“We need a global solution to this problem,” said Chenai Mukumba, a policy researcher with TJN, who has recommended the formation of a UN –led organization to be spearheaded by a G20 group of developed and emerging market countries to tighten the rules.

Clifford Omondi, a tax experts the worrying trend by multinationals dodging their tax obligations to escalate even though despite ongoing efforts by local tax agency, Kenya Revenue Authority (KRA) increasing surveillance to seal revenue leakage.

“Unfortunately it is a trend that will continue even though there have been notable measures by the authority to help curb the vice,” said Mr. Omondi in a telephone interview.

The State of Tax Justice 2020, a first-of-its-kind annual report by the Tax Justice Network, reveals for the first time an estimated tax each country in the world loses to international corporate tax abuse and private tax evasion.

While there have been estimates in the past about the tax lost globally to tax abuse, it has been difficult to determine how much each country loses individually – until now.

The State of Tax Justice 2020 reports that multinational corporations are shifting US $1.38 trillion worth of profit into tax havens each year, causing governments around the world to lose US $245 billion a year in direct tax revenue. It also estimates a further $182bn in direct tax revenue is lost from private offshore tax evasion, all of which can be attributed to individual countries.

Large corporations ordinarily shift their profits to low tax or no tax jurisdictions, in order to artificially drive down their tax obligations elsewhere and pay little to no tax on the profits they shift into tax havens

Indeed, TJN also ranked Kenya as one of the top spot in the region with financial secrecy in its February Financial Secrecy Index Financial Secrecy Index in which the country scored 76 out of 100 in terms of secrecy and jumping by 24 per cent. Only Angola and Nigeria beat Kenya in the disgraceful ranking.

FSI ranks each country based on how intensely its legal and financial system allows wealthy individuals to hide and launder money extracted from around the world.

Hundreds of billions of shillings is being laundered out of the country through Europe every year, but the government is unable to give a precise figure of the scale of the problem, with suggestions that the scope of such losses could be much higher.

It is estimated that Kenya has been losing more than what JTN has estimated every year through illicit financial flows since 2011, as government, local firms and multinationals engage in fraudulent schemes to avoid tax payment.

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