‘Rescind double tax’ deal – lobby

Tuesday, May 17th, 2022 08:00 | By
KRA Times Tower

Kenya has been urged not to sign double taxation agreements (DTAs) with Portugal and Turkey due to concerns about the due diligence that goes into such treaties.

A report by the Tax Justice Network Africa (TJNA) and the East African Tax and Governance Network (EATGN), such agreements would put the country at the risk of eroding tax revenues, further increasing the debt strain.

The report dubbed The Good, The Bad and The Ugly, reveals Kenya’s tax treaties with Portugal and Turkey could expose the country to future revenue losses if those agreements are to be ratified in their current forms.

“There is a need to evaluate both tax treaties in relation to how they are likely to negatively affect Kenyan tax law. In our view, the minimum portfolio of 10 per cent proposed in the Portugal draft is quite low – even lower than the domestic rate of 12.5 per cent – and is not in accordance with the rates provided by Kenya in its other DTAs,” said the Tax Justice Network Africa.

Tax havens

DTAs are international agreements between two countries to allocate taxing rights between the two countries that have negotiated the particular DTA – whose purposes are to help the two countries avoid double taxation.

Kenya mainly uses DTAs to avoid double taxation at the international level and the lobbies are calling for exhaustive scrutiny to avoid foul play by State officials.

Bernard Odhiambo from the Kenya Investment Authority (KenInvest) noted glaring policy gaps in such contracts urging relevant agencies such as the National Treasury and the Kenya Revenue Authority (KRA) to work in unanimity while crafting such treaties.

“All agreements are domiciled at the Treasury and it is always unclear why such documents were never made public,” he noted.

With regard to the Turkish draft, the report further pointed out that the provision does not provide a time threshold within which such shares must be held.

“Without giving a minimum timeframe in which the 25 per cent shareholding is to be held, this provision is likely to be abused by non-resident shareholders who may increase their shareholdings just before dividends are paid in order to obtain the concessional tax rate,” it noted.

Shrewd individuals

The group claims that the unclear tax treaty between the countries could also expose Kenya to what is known as Offshore Indirect Transfer, ordinarily meant to prevent the collection of Capital Gain Tax (CGT).

Shrewd business individuals and powerful politicians national companies and offshore accounts in countries like Singapore for fraud and illegal bus including government officers are known to use the technique (Offshore Indirect Transfer) to set up maltiness 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 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.

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