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Kenyan Parliament urged to open up tax havens to public scrutiny

A tax haven is generally an offshore country that offers foreign individuals and businesses little or no tax liability in a politically and economically static environment. Tax havens also share limited or no financial information with foreign tax authorities

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By Steve Umidha

Tax Justice Network Africa (TJNA) and the East African Tax and Governance Network (EATGN) will move to Parliament in a dare stab to have the State rescind tax treaties it signed with Singapore and Barbados, barely a month after effectively petitioning the matter against the National Treasury.

The two civil groups Monday said there was need to evaluate both tax treaties Kenya signed with the two countries as they are likely to negatively affect Kenyan tax law.

“That further to submission of comments, the Barbados and Singapore tax treaties will require parliamentary scrutiny and public debate under the Treaty Making and Ratification Act of 2012 (TMRA 2012),” reads a joint communique in part.

The communique further stated that such a move will be in line with the fulfilment of the “monist principle in the Constitution; requiring approval by the legislature on treaties that become part of domestic law, especially if they affect public finance and the burden of taxation, as laid down in articles 1, 2.6, 114(2), 201 and 210(1) of the Constitution.”

Singapore and Barbados, considered by anti-corruption and global anti-money laundering agencies as some of the murkiest financial centres in the world besides Mauritius and other well-known tax havens, are on the verge of ratifying double tax treaties with Kenya, a decision that continue to face opposition from various quarters.

The two groups further say such a decision could expose the country into future revenue losses if it is to be ratified in its current form.

They are also calling for a legislative scrutiny into the impending tax treaty with the Asian Island country to avoid foul play by State officials.

“This is especially because these treaties entail a restriction on tax sovereignty and have major revenue implications; they grant tax benefits and exemptions to foreign investors not available to Kenyan citizens or companies, resulting in reduction of government revenue and directly affecting the public finances and the sharing of the burden of taxation (Constitution Article 201),” the joint statement says.

Kenya’s TJN Executive Director Alvin Mosioma says considering the increasing significance of tax havens in the loss of domestic revenue believes there should be a need to publicly explain why there’s an urgency to sign DTAs with known tax haven jurisdictions instead of prioritizing the implementation of one that has already been developed by the East African Community (EAC) members, who are Kenya’s largest trading partners.

“Public impact analysis on the risk of revenue loss will need to be shared for a national debate. The revenue implications of the various benefits, and possible losses from exemptions in tax treaties must be evaluated against the conceivable gains, or otherwise, of attracting investment from abroad,” he said.

The National Treasury Cabinet Secretary Ukur Yatani in July 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 June 12, 2018, respectively.

In the notice dated July 13, 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.

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 an average of Sh40 billion every year through illicit financial flows since 2011, as government, local firms and multinationals engage in fraudulent schemes to avoid tax payment. This figure is now thought to be just a cosmetic measure.

Those tax havens are now believed to be growing in numbers, thanks to Double Taxation Agreements (DTAs) Kenya signed with some – and whose sincerity are now being question by some quotas who believe are being used in promoting financial secrecy and opacity in the negotiation of treaties, and their linkages to tax havens.

Seychelles, South Africa, Netherlands and Mauritius are ranked as are also some of the aggressive and extensive tax haven jurisdictions that are used by multinational enterprises to avoid paying tax, thereby eroding revenues of other countries, more so in the developing world such as Kenya.

The vast majority of financial, businesses in betting firms, and real estate transactions are associated with illegal activity in this country, part of what underpins Kenya’s opulence in a steady stream of illicit proceeds from corruption and crime.

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