Nairobi, August 22 — Tax Justice Network Africa (TJNA) and the East African Tax and Governance Network (EATGN) has cautioned the government of Kenya in its pursuit of new Double Taxation Agreements (DTAs) with the government of Barbados and Government of the Republic of Singapore.
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. The civil society argue that having DTAs with both countries doubly places Kenya at risk of eroded tax revenues in a time of increased debt strain.
DTAs serve to relieve the double taxation of income that is earned in one jurisdiction by a resident of another, providing relief from double taxation in the situation where income is subject to tax for both countries.
In response to a notice issued by the Ministry of Finance, National Treasury, and Planning, on July 13 this year requesting for public submissions on the respective treaties, TJNA and EATGN welcomed the change in policy behavior and submitted comments for the two DTAs on August 17.
This represents a fundamental shift in the inclusion of stakeholders in treaty-making and ratification processes in Kenya.
The civil society group now urges that the process moves beyond invitations for comments to more constructive consultations, analysis, and decision making that involve other participants including the Kenyan parliament.
Having previously petitioned the High Court and won against the National Treasury on the issue of public participation as related to the DTA with Mauritius, TJNA recognizes this significant step taken by the government to begin opening up the process of policymaking as enshrined in the Kenya Constitution.
Alvin Mosioma, TJNA Executive Director had previously stated “TJNA intends to ensure that in future similar tax negotiations are not in contravention with the laid down laws and procedures.”
Nevertheless, considering the increasing significance of tax havens in the loss of domestic revenue, TJNA and EAGTN have asked the Kenyan Ministry of Finance to note key considerations during the process.
“The government needs to publicly explain why there’s an urgency to sign DTAs with known tax haven jurisdictions such as Mauritius or Singapore 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,” Alvin Mosioma told Ubuntu Times in an interview.
EATGN is a civil society collaborative initiative of individuals and non-state actor institutions in the East Africa Community (EAC) that share the understanding that taxation is fundamental in achieving social justice and development goals.
Further, TJNA wants 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).
This is in line with the fulfillment 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
According to Mosioma, 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 TMRA is necessary.
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 the reduction of government revenue and directly affecting the public finances and the sharing of the burden of taxation (Constitution Article 201).
A public impact on the risk of revenue loss will need to be shared for and national debate. The revenue implications of the various benefits and possible loss from exemptions in tax treaties must be evaluated against the conceivable gains, or otherwise, of extractive investment from abroad.