BY winnie Kamau
When I first saw ‘Stop the Bleeding’ campaign I thought to myself maybe it is a medical issue or a blood donation campaign. A little digging and this blew up my mind. Africa is stopping the illicit Financial Flow that is robbing us Billions of dollars.
Did you know the many countries in Africa and Asia are bleeding profusely due to the illicit flow of finances to the pockets of a few people who regard themselves clever geniuses?In India it is estimated they loose US$600 Million annually in revenues as a result of tax avoidance and illicitly the business people because of the Double Tax Treaty (DTT) with Mauritius.
Looking at several reports released by the Tax for Justice Lobby group shows the loop holes that are denting many countries including yours truly Silicon Savannah- Kenya. The agreement is denting Kenya’s ability to raise domestic revenue to under-gird its development.
In May 2012 former Minister of Finance Njeru Githae , current Ambassador to the United States and his Mauritanian counterpart then Xavier –Luc Duval signed a Double Taxation Avoidance Agreement and an Investment Promotion and Protection Agreement. What this means is that a foreign investors under the Agreement can acquire Kenyan companies through Mauritius holding companies and Kenya cannot tax any of their profits when they sell them. Likewise domestic Kenyan investors can dodge the Kenyan Taxman by round tripping their investments illicitly through their Mauritian based company. In total the Kenyan company can easily avoid to pay the taxes and dividends paid to foreign investors.
So India entered into this love called Double Tax treaty between it and Mauritius in 2001. It was sure love at first sight since it was India engaging in Foreign Direct Investment. The first few honeymoon years was enjoyed by many aggressive investors before it turned into pure abuse leading to 47% of India’s Foreign Direct Investment rerouted through Mauritius with many companies avoiding to pay their taxes as required by the law. In 2011 this estranged love situation with the DTT led the Indian government to rethink the love affair and signaled intention to renegotiate its DTT with Mauritius.
For the record we are not discrediting this great nation that not only boasts of great beaches and high tourism records in the contrary Mauritius comes highly recommended. The World Investment Report 2010 identified Mauritius as a favorable and tax efficient platform for African investments. The country is also on the “white list” which entails jurisdictions that have implemented the internationally agreed tax standard and are therefore not considered tax havens by the Organization for Economic Co-operation and Development (OECD) or by the United Nations.
Mauritius was ranked among the top ten countries globally on the Economic Freedom Index (EFI) and the Environmental Performance Index (EPI) in 2010. Being the choice country for many cross-border investments into Africa has to do with, among other factors, the country’s incentive for companies to reduce their tax burden in countries they invest within the continent. Mauritius currently has DTTs with 13 African states (Botswana, Lesotho, Madagascar, Mozambique, Namibia, Rwanda, Senegal, Seychelles, Swaziland, South Africa, Tunisia, Uganda and Zimbabwe) and has signed DTTs with four other states (Kenya, Congo, Zambia and Nigeria) which are awaiting ratification. The country is also in the process of negotiating DTTs with Burkina Faso, Algeria, Tanzania, Egypt, Gabon, Malawi and Ghana.
Looking at some of the corrosive benefit package of the DTT with Mauritius anyone in their right business senses would jump in and not think twice of the consequences. Including; In Kenya Capital Gain Tax is normally taxed at a rate of 30-35%. But with a DTT with Mauritius it does not impose such taxes hence the company based in Mauritius is exempt of this tax. So where does this money go to? Companies investing through Mauritius completely avoid Capital Gain Tax and are able to keep huge profits from monies due as tax therefore granting maximum withholding tax to the investing country. This Double Tax tragedy needs to be stopped and Kenya as a nation needs to rethink its position before it adopts this agreement completely.
According to a report by Price Waterhouse Coopers PWC indicates that both parliaments Kenya and Mauritius ratified the DTT on May 23rd 2014 but the enforcement is expected to take place when the ratification instruments are exchanged between the two Countries. When approaching this Treaty Kenya needs to be cautious.
Kenya is ranked among the top Foreign Direct Investments (FDI) destinations in Africa. According to FDI Intelligence report of 2012 Kenya was ranked 10th in infrastructure systems in Africa and 8th in Human resource capacity attributed in Africa. Kenya in 2011 attracted 55 projects of Foreign Direct Investment (FDI) compared to 154 projects in South Africa and 70 projects in Morocco. The biggest FDI inflows attracted the coal, oil and gas and ICT services.
Having such a robust economy this Treaty if fully materialized will rob off Kenya its revenue and we all need to wake up and read through the red-lines of the Treaty and not fall in the same trap like India. Lets not make the move that will enslave the Country’s revenue that will only benefit only a few people while the country bleeds from illegal financial flows.
