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Lobby sees revenue loopholes in treaties

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Export Processing Zone
Workers at a factory in an Export Processing Zone in Athi River. FILE PHOTO | NMG 

East Africa Tax and Governance Network says double taxation agreements (DTAs) between Kenya and other countries come with little disclosure and may be exposing the country to tax leakages.

The organisation specialising in taxation, governance, public policy and research says the economy may not benefit unless the government comes up with strict transfer pricing rules and make public the details of all DTAs.

“DTAs may potentially be exploited by tax dodging firms by redirecting untaxed profits out of Kenya. We don’t get a sense that there has been public participation around it,” said East Africa Tax and Governance Network (EATGN) coordinator Leonard Wanyama.

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“There should be a clear publication for citizens to know what is in these DTAs and also which companies are benefiting from these DTAs and how.”

The concern comes at a time Kenya has 17 DTAs under consideration with countries such as Belgium, Jordan, Malaysia, Russia, Spain, South Sudan and Zimbabwe. It has 15 signed and operational agreements while seven have been inked and are awaiting enforcement.

Mr Wanyama said the government should set up a portal where all such agreements must be uploaded and subjected to public scrutiny before being ratified.

“We have to get more transparency so that there is a level of accountability for government as well as the companies involved,” he said.

Commenting on the 10-year tax holiday enjoyed by firms producing under Special Economic Zones (SEZs) and Export Processing Zones (EPZs), Mr Wanyama said the period is too long and presents another loophole for the economy to lose revenue.

“Considering our revenue demands, SEZs and EPZ firms should be brought into tax bracket much faster. Some firms may work for 10 years then close shop. We see this as a loophole since 10 years is way too long,” he said.

The lobby wants this changed to a graduated system where firms enjoy two-year tax holiday, followed by 75 percent exemption in third and fourth year, and thereafter, a two-year 50 percent exemption. This then drops to zero in 10 years.

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