Tax havens
Legislators are increasingly seeing the challenges posed by numerous tax loopholes in Kenyan laws.

Tycoons, trusts and companies have been blocked from using agreements with offshore countries charging lower taxes to avoid paying the exchequer as MPs sought to tighten double tax agreement rules.

Under the tax agreement with Mauritius gazette last year, firms with a presence in both countries would pay 8 per cent on dividend lower than the non-resident charge of 15 per cent.

Firms would also pay 12 per cent on royalties lower than the 20 per cent charged on other foreigners and would not pay a cent on capital gains on sale of shares.

Finance Committee of the National assembly has proposed a change in tax laws to limit the number of persons who can benefit from the DTAs to those who actually live in the low tax countries and own over 50 per cent of the assets.

They expanded the law to cover not only individuals but companies, trusts or governments and ownership held directly or through proxies.

Read also: The loss-making State firms that are milking taxpayers dry

MPs have also called for more say in setting up such arrangements by moving them from the control of Cabinet Minister under the tax act to the treaty making process.

“In addition to the amendment proposed in the Bill to delete the words ‘an individual or individuals’ and replace with ‘a person or persons’, this amendment is made to provide that double taxation agreements/arrangements should be considered in accordance with the treaty making and Ratification Act and not the Statutory Instruments Act. This is in line with the Committee’s recommendations last year during consideration of the Mauritius DTA,” The Finance Committee said.

Countries sign double tax treaties to avoid charging taxes on the same businesses in both jurisdictions and provide dispute resolution mechanisms if there are squabbles over taxing rights.

Kenya has double tax agreements with Iran, Kuwait, Seychelles, South Africa, Qatar, Korea, the United Arab Emirates, India, the Netherlands and Mauritius

The entry on a double tax deal between Kenya and Mauritius sparked resistance from civil rights group over loopholes that could be used by the wealthy to legally avoid paying taxes to the Kenya Revenue Authority.

Taxes in Mauritius are significantly lower than Kenya which they claimed opened room for round-tripping and manipulation of transfer pricing regulations where firms making profits in Kenya would simply register in the offshore Indian Ocean country and pay lower or no taxes.

The Finance committee proposals seek to prevent tax avoidance through round tripping, that is, the situation in which Kenyans register their companies in other countries then return to claim incentives as foreign entities that deserve tax exemptions.

This is a positive signal that legislators are increasingly seeing the challenges posed by numerous tax loopholes in Kenyan laws.

The tax lobby groups said this was another win in the fight for transparent tax policy following several litigation in relation to the Kenya – Mauritius DTA.

Last year, the High Court declared the previous DTA between Kenya and Mauritius illegal following a petition by Tax Justice Network Africa (TJNA).

The High Court ruled that the DTA was not approved by the National Assembly as stipulated in the Statutory Instruments Act, 2013.

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