Kenya still a top ‘illicit tax haven’

Thursday, September 29th, 2022 04:20 | By
Tax haven
Tax haven illustration. PHOTO/Internet.

Kenya is still among leading tax havens in Africa despite its improved global ranking according to the latest Financial Secrecy Index by the Tax Justice Network (TJNA).

The country scored 67 out of 100 in terms of secrecy in 2022, improving from position 72 in 2020 and 80 in 2018. This means that while EAC’s powerhouse advanced in terms of global grading, its financial sector ranking makes it highly secretive, meaning it is helping individuals hide money from the real economy.

Financial transparency

“Kenya supplies 0.828 per cent of the world’s financial secrecy,” reads the report which gave Kenya an 86-percentage points in terms of meeting the recommendations of the Financial Action Task Force (FATF).

The secrecy index ranks each country based on the rate in which the country’s legal and financial system allows wealthy individuals to hide and launder money extracted from around the world. Its index ranks countries on a scale from 1 to 100. Zero means full transparency while 100 means it is cloaked in full secrecy.

The latest score, albeit an improvement, shows that the country largely remains a corridor for illicit financial activities like tax evasion and money laundering, hurting its revenue collection targets. “The results of this year’s Financial Secrecy Index highlight the problem of having the very same countries that are the leaders in the provision of financial secrecy be the very same countries that are spearheading the discussions on global tax reform… Such a body is necessary to enable African countries to participate in global discussions on tax on an equal footing as all other countries,” said Alvin Mosioma, Executive Director Tax Justice Network Africa.

He was speaking during the ongoing African Parliamentary Network on Illicit Financial Flows and Taxation forum.

The 2022 FSI report by the Tax Justice Network notes that the largest enablers of financial secrecy are some of the richest nations in the world, including the USA and Switzerland.

Global Financial Integrity and Brookings estimates of 2018 showed that 0.7 per cent of total trade in Kenya is lost through illicit outflows.

It found that, on the continental level all but 4 of the 18 countries assessed in the region – Rwanda, South Africa, Seychelles and Ghana – have made progress in improving financial transparency at home but none of the countries in the region was in the top 30 of financial secrecy suppliers in the world.

On the other hand, several countries, such as Kenya and Nigeria, are in the top 20 of those that have improved their laws against the use of secretive financial practices by non-residents.

This comes amid calls by African nations who Tuesday called for UN tax convention to protect against financial secrecy supplied by the richest nations.

Such calls were backed by the United Nations (UN) Secretary General António Guterres who yesterday announced his readiness to support a UN convention on tax that would overhaul century-old global tax rules.

The backing from the UN’s highest ranking officer kicks open the door for negotiations among member states, which Kenya belongs to, to begin following two years of rapidly growing momentum among governments, international bodies and rights campaigners for a UN tax convention.

After a decade of failed reform efforts at the OECD, a club of rich countries that has set global tax rules for the past 60 years, countries all around the world remain exposed to rampant global tax abuse by multinational corporations (as well as by wealthy individuals), which is estimated to cost countries a total of USD $483 billion in lost tax a year.

Africa loses about US$ 90 billion per year in illicit financial flows, robbing the continent of resources to finance investment and development.

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