Kenya: MPs Willing to Pay Taxes, Says Kalonzo

14 July 2008 (East African Standard)
Vice President Kalonzo Musyoka has re-ignited the debate of taxing allowances of members of Parliament, saying the MPs were willing to pay taxes. "All of us in Parliament are willing to be taxpayers," Mr Musyoka said yesterday. "We have to lead from the front. That's what the 10th Parliament intends to do." The vice president was speaking at KICC at the launch of a new logo and ISO certification award for the Kenya Revenue Authority.

Kenya: Taxman Surpasses Target by Sh9.2 Billion

8 July 2008 (Daily Nation)
Kenya Revenue Authority collected Sh118.4 billion between April and June to bring the total collection for the year ended June to Sh433.9 billion, surpassing the 2007/2008 financial year target by Sh9.2 billion. KRA Commissioner-General Michael Waweru addresses the press at Times Towers during Monday's announcement of the revenue performance report for the period between July 2007 and June 2008.

Double taxation still stalks East Africa

27 June 2008 (Daily Nation)
East African finance ministers announced a number of tax reforms in their budget proposals, but yet again remained silent on the double taxation. The continued absence of double taxation agreements among East African Community member states means that companies with branches in other countries within the region will continue to pay stipulated corporate tax in the country hosting their subsidiaries besides the tax they pay in the country where they are headquartered.

Kenya- Mobitelea reaps millions in Safaricom's payout

5/29/2008
Treasury and Vodafone Kenya will pocket Sh2 billion in proposed dividends after Safaricom announced record profits. The two are the shareholders of East Africa's most profitable company. Mobitelea
Ventures, the shadowy Guernsey-registered entity, are among the major indirect beneficiaries of Safaricom's sterling performance for the year ending March 31, 2008.

Kenya - Taxation offers scope for containing rising oil price

28 May 2008.
Last week we delved into a subject that for a while now has concentrated every mind in this country, burnt a hole through every pocket and continues to leave a sour taste in the mouth for some time to come—oil and its soaring price. I started by laying out the backdrop in which oil is traded globally, setting out the major market drivers and illustrating how these manifest in our pump prices

Kenya: Taxation the only solution to inequality

According to old taxation theories, the most basic functions of a State are to protect the lives and property of their citizens from internal and external aggressors.
Naturally, the State requires resources to do this, and the most equitable way of getting the resources would be to tax people in accordance with the kind of protection they require.

Kenya: UK probe fails to unravel Mobitelea

An investigation by the British government's Serious Fraud Office into the complex issue of Mobitelea's share of the Kenyan mobile phone giant Safaricom has not resolved the matter, it has been revealed.

Open up debate of tax policy to public

(East African Standard)
The arrival of the Kenya Revenue Authority's annual Taxpayers' Week should be seen as an opportunity to mend fences with taxpayers, even as the institution pats itself on the back for a job well done. It should also be an opportunity to reopen debate on whether current tax policy addresses issues of equity and distribution adequately.
A great deal has been achieved in the last few years with regard to broadening the tax base and ensuring those who have previously evaded taxes pay up. However, this hasn't always been done with sensitivity to taxpayers.
As we have urged in these pages before, a softly-softly approach is no less likely to work and will go a long way to enlisting the cooperation of taxpayers.
To keep up economic growth, the State requires sufficient revenue to fund the physical and social infrastructure.
The revenue also enables a degree of wealth distribution in order to promote equity and security.
Tax collection has steadily grown by an average of 13 per cent increasing from Sh200 billion in 2003 to approximately Sh375 billion in 2006. KRA plans to raise Sh425 billion this financial year in revenue collections. This will be Sh65 billion more than last year and about Sh127 billion more than the year before.
The remarkable improvement in revenue collection is probably one of the few undisputed achievements of the current Government.
It has seen the financing of development programmes from domestic financial resources go up to 95 per cent of the national budget.
This is indeed high compared to our neighbours Uganda, for instance, where only 55 per cent of the budget is financed domestically.
The unprecedented growth has also enabled the Government to substantially reduce dependence on assistance for both recurrent and development expenditure.
While this independence from donors is laudable, it also raises a number of issues that require discussion.
As organisations such as the Tax Justice Network for Africa have suggested before, the public would greatly benefit from debating issues such as:
How has the increase impacted on the poor households? Who is carrying the tax burden resulting from this increased revenue collection? How adequately have issues of equity and distribution been addressed in the current tax system?

Do you feel poor and fleeced Options

22nd September 2007(Daily Nation)
Christian Aid has a shocking slogan for an institution whose members preach the resurrection and heaven: "We Believe in Life Before Death." The organisation, working with the Tax Justice Network, has produced a report entitled The Shirts off their Backs: How tax policies fleece the poor. Although the report is two years old, it is sufficiently annoying to be relevant today. And they are not stopping there. This week, they set up shop in Nairobi — with help from the Heinrich Boll Foundation — and hosted tax expert Jack Ranguma and Institute of Economic Affairs' Kwame Owino at a public forum to discuss tax justice. It is an eye-opening forum — especially as sitting back quietly, you learn that less than 3 million people in Kenya pay tax, that the Kenya Revenue Authority only captures 24 per cent of the Gross Domestic Product, and that multi-national corporations are the most expert tax dodgers. Under the microscope, the boast that Kenya is financing its budget almost entirely from local revenues falls apart. The Shirts off their Backs says KRA is owed Sh88.5 billion in unpaid taxes — and this money will probably never be paid because the businesses that owe are no longer trading in Kenya or have closed. Tax Justice Network estimates that up to 70 per cent of the wealth holding of high-net individuals is held offshore. Revolutionary stuff, but perhaps you do not want to hear it in an election year.

Bank's policy shift strange

(Business Daily Africa)
Does anyone find the International Monetary Fund and World Bank's latest enthusiasm for financing free education only a few years after they insisted on cost sharing intriguing?
As one development scholar recently put it, if a construction engineer presides over the building of a bridge and a few years later that bridge collapses, he can be held liable for his role in the project.
If however a policy wonk prescribes bad policies that lead to loss of lives they simply walk away from it and profess alternative policies.
This is the looking glass through which Kenyans should see the latest enthusiasm that the World Bank has for financing free education in Kenya despite having forced the country's hands into costly cost-sharing programmes in the health and education sectors a few years ago.
Yesterday, the bank was head over heels in support of President Kibaki's hint that the country may offer free secondary education beginning next January, leaving many Kenyans wondering where the catch is.
And the catch is that with the country increasingly financing its national budget from local resources, the two institutions have been losing policy leverage within the official circles.
Could someone at the World Bank please explain what has informed this shift in their policy on education financing?

Kenya: Kenyans Almost Weaned Off Donor Aid

East African Standard (Nairobi) 11 September 2007
Donor funding could drop to one per cent of the Government's Budget next year, a World Bank official has said. This follows efforts to improve tax collection, borrow domestically and reduce reliance on external lenders to pay for State operations. Country Director, Mr Colin Bruce, said donor support has fallen from eight to five per cent of the national Budget since 2002. He added that if the Government sustains the current economic momentum, donor funding should fall further to about one per cent of Treasury's needs by next year. Bruce made the remarks at the launch of the Kenya Joint Assessment Strategy (KJAS) in Nairobi. The KJAS is a five-year blueprint that guides lending to Kenya from 17 nations, including major development partners like Japan, Germany, the United Kingdom and the United States. The World Bank official praised the Government's Vision 2030 economic blueprint, saying it contained key elements that could help Kenya achieve and sustain a higher level of economic growth, social equity and poverty reduction. He added that the State urgently needed to ensure more Kenyans benefited quickly from the ongoing economic recovery programmes. "We believe there are many positive developments taking place in Kenya on the economic front," he said. "We see many challenges too, including in key areas such as economic and social empowerment, infrastructure and internal security." Key reforms Bruce, who was speaking as the head of the Donor Coordinating Group, said the country was likely to achieve some elements of the United Nations' Millennium Development Goals (MDGs) by 2015 despite the challenges. The areas showing promise include enrolling all children in primary school, eliminating the gender gap, and reduction of both the HIV and Aids prevalence rate and malaria infections. He added that the country had to take new measures to meet some of the other goals. "It will be a challenge to reach the goals of reducing by half the proportion of people having no access to safe water, the proportion of malnourished children, and the proportion of people living on one dollar or less a day," he warned. "At current rates of progress, Kenya is also unlikely to reduce maternal mortality by three quarters and child mortality by two third by 2015 as set by the UN." He said the country has attained a stable currency because of the huge financial inflows from Kenyans in the Diaspora. He pointed out that there had been improvements in fiscal discipline and public sector management, the business climate and investment in human development. The country's Gross Domestic product (GDP) currently stands at Sh1.7trillion. Finance minister, Mr Amos Kimunya, who also attended the event, said the growth in real GDP climbed from 0.5 per cent to six per cent and is estimated to keep growing. "By the end of the year, we expect the rate to be around 6.9 to seven per cent," the minister said. He also noted that poverty has eased with the proportion of people living on less than a dollar a day reducing to 46 per cent of the population, down from 56 per cent in 2005. "Indeed, income per capita, which was $400 (about Sh27,000) in 2004, is now slightly over $600 (Sh40,000)," he said. "To achieve Vision 2030, we will require to invest heavily in sectors such as tourism, agriculture, manufacturing, business process outsourcing and in physical and social infrastructure programmes."
Editorial: Bank's policy shift strange

Africa: Pope's New Encyclical to Declare Tax Evasion Socially Unjust

Catholic Information Service for Africa (Nairobi)
14 August 2007
Pope Benedict XVI is working on his second doctrinal pronouncement that will condemn tax evasion as "socially unjust", according to Vatican sources. The pontiff will denounce the use of "tax havens" and offshore bank accounts by wealthy individuals, since this reduces tax revenues for the benefit of society as a whole, The Times Online reports. The new encyclical will focus on humanity's social and economic problems in an era of globalisation. Pope Benedict intends to argue for a world trade and economic system "regulated in such a way as to avoid further injustice and discrimination", said Ignazio Ingrao, a Vatican watcher. The encyclical, drafted during his recent holiday in the mountains of northern Italy, takes its cue from Pope Paul VI's encyclical Populorum Progressio (On the Development of Peoples), issued 40 years ago. Paul VI focused on "those peoples who are striving to escape from hunger, misery, endemic diseases and ignorance and are looking for a wider share in the benefits of civilisation". He called on the West to promote an equitable world economic system based on social justice rather than profit.

Sh200bn lost in tax waivers and evasion

(Business Daily Africa)-15th August 2007
Treasury's public finance reform unit says there is a high level of tax evasion and too many waivers that reduce government revenue.
Although a detailed study is yet to be done, tax experts have estimated that it is possible to collect Sh600 billion or 50 per cent more tax, than is currently the case. The 2006/7 collections were Sh376 billion, but Treasury expects to get Sh429 billion in the 2007/8 fiscal year, which is about 21 per cent of the gross domestic product.
Uganda collects about 23 per cent of its GDP, while a middle income countries such as Greece has been know to collect up to 45 per cent of its GDP.
It has also emerged that not enough efforts have been put towards ensuring that non-tax revenue is collected. The little collected is not even remitted to the Treasury and may be ending up lining individuals' pockets.
Although Finance minister Amos Kimunya thanked Kenyans for paying tax when he presented the Budget in June, concern has emerged over actual potential of revenue collection as Treasury embarks on reforms under the Public Financial Management (PFM) programme.
A paper on the constraints to better PFM says: "Diagnostic studies have revealed that there is a high level of tax evasion and waivers. In addition, the level of efforts to collect non-tax revenue is low and revenue collected is sometimes not remitted to Treasury, leading to excess and hidden expenditure."
An attempt by Business Daily to get a response from the Kenya Revenue Authority was unsuccessful. KRA is headed by Commissioner General Michael Waweru.
However, tax expert Paulino Mutegi of Ernst & Young says that even GDP figure must be lower than the actual production in Kenya, indicating that a much higher level of tax is possible.
"I cannot say for sure how much more can be collected, but the potential is great. Many people don't pay tax on income from buildings they own and the jua kali sector largely goes untaxed," Mr Mutegi said. He urged the government to have a friendly tax regime, adding that many people who are currently not paying tax would end up paying voluntarily.
He said many farming activities as well as those in the informal sector were not captured in the GDP. Total revenues, including appropriations-in-aid, are projected to increase by about 14 per cent, bringing the total tax collection to about Sh428.8billion.
The state believes that the improved performance is underpinned by on-going reforms in tax administration, while the streamlining of the exemptions regime in line with other East African Community partner states is also expected to protect the revenue base. But critics have pointed out that revenues can exceed Sh600 billion if tax administration as well as the capacity of KRA were improved.
Tax evasion problem In sub-Sahran Africa, revenue to GDP ratio is below 20 per cent, showing that Kenya is among the highest in the region.
However, in a country like Greece, the ration was 46.5 per cent in 2003. In Uganda, the ratio is about 22 to 23 per cent, yet the country has less than half the size of Kenya's economy. Thus it is possible for Kenya to get at least 30 per cent of GDP in revenue if stringent measures were to be effected.
The tax evasion problem is not unique to Kenya. The Tanzanian Revenue Authority is currently facing a daunting task because the revenue to GDP ratio, at below 15 per cent, remains significantly below the average for Sub-Saharan Africa.
The paper by PFM further shows that Kenya's financial management system suffers also because budget disbursements are unpredictable as payments can be delayed resulting in high arrears. "Cash management and commitment is still poor," says the report.
It notes that the variance between the annual budget and the final expenditure outcome is high. Mr Kimunya recently said the finances needed to be streamlined to ensure that resources allocated were actually spent rather than returned to Treasury as is the case from year to year.
"Parliament's, line ministries and district level involvement in the budget process is low and the process delayed. Budget allocations do not adequately address poverty alleviation," the report said.

Kenya: Challenges of Collecting Tax across Countries

13th August 2007 (East African Standard)
In many developing countries, multinational corporations hold a large swathe of the economy - agriculture, manufacturing and tourism being the most visible.
In Kenya, for example, foreign multinationals dominate agriculture, especially horticulture. There is much debate between those who consider globalisation to be a malignant influence on poor nations and those who find it a positive force.
The debate focuses not just on trade, but also on multinational corporations. And one of the most controversial but least understood of a multinational's operations is transfer pricing. This governs transactions among divisions in a company.
For a company operating in a single tax jurisdiction, transfer prices track internal transactions and allocate costs to different activities. In this case, transfer prices are mainly used to evaluate division managers' performance based on profits generated.
They also help coordinate the divisions' decisions to achieve the organisation's goals to ensure goal congruence, make decisions and preserve autonomy. However, for a multinational company with affiliates in different tax jurisdictions, transfer prices serve more than tracking internal transactions for accounting purposes.
They determine tax liabilities of the affiliates in different countries, and hence the liability of the entire multinational. When a part of a multinational organisation in one country sells goods, services or know-how to another part in another country, the price charged is called 'transfer price'.
This may be a purely arbitrary figure, and may be unrelated to costs incurred or operations. Internationally accepted transfer pricing provisions require any income from an international transaction between two or more associated enterprises to be at arm's length price and be comparable to similar transactions among unrelated enterprises.
This means that a company must be able to demonstrate that the price at which it trades with affiliated companies is comparable to the prices and terms that would prevail in similar transactions among unrelated parties.
As inter-company transactions across borders keep growing and becoming more complex, compliance with the requirements of multiple overlapping tax jurisdictions is becoming a complicated and time-consuming task.
At the same time, tax authorities in each country impose strict penalties, new documentation requirements, increased information exchange and audit or inspection.
One of the major arguments against transfer pricing is that it and tax havens, individually and in combination, adversely affect the ability to raise revenues. Research has shown that in some instances, increasing the arbitrary transfer price boosts a multinational's after-tax profit.
This is done without changes to procedures, operations or added value, but by mere change of book entries. Increased profitability arises from tax avoidance. In other words, it is possible for a multinational company to minimise its liability for corporation tax by transfer pricing.
This is legal unless a jurisdiction legislates to prevent the practice. In principle, all income that crosses international borders could be taxed by the country where it originates (the source country) or by the country of residence of the recipients - the home country.
If the two countries taxed such income, double taxation would occur. To forestall this, domestic laws and bilateral tax treaties have provisions to prevent this. Treaties also provide for exchange of information between tax administrators of source and residence countries.
Most treaties among developed countries are based on the OECD Model Treaty. Those between developing countries are more likely to follow the UN Model Treaty, generally more favourable to source countries.
Under the treaties, income is taxed depending on how it is characterised. Source countries ordinarily tax net business income, but only if it is earned by a 'permanent establishment' in the country. By comparison, source countries tax interest, dividends and royalties, if at all, on a gross basis (without regard to deductions for expenses of earning the income), commonly via withholding taxes.
The taxes are generally reduced, sometimes to zero, under treaties. In some jurisdictions, if a company or a branch did not transact business 'at-arm's-length', tax authorities can add to its taxable basis the advantage granted to an affiliated company; or challenge the deductibility of tax losses.
In practice, whether a company has engaged in improper transfer pricing depends on the circumstances of the transaction. Despite the general requirement of 'at-arm's-length', various jurisdictions have in some cases been willing to accept that companies of the same group may interact with one another in a way that independent parties would not.
Developing nations face several layers of overwhelming problems in transfer pricing. Laws may not deal adequately with the issue. The UN reports that transfer pricing regulations, guidelines and administrative requirements of 41 per cent of developing countries do not address services and regulations of two-thirds do not address technology transfers.
Even where laws for monitoring transfer pricing exists, a developing nation may lack the administrative capacity, including specially trained economists, to deal with the problem.
The writer is a business analyst with The Standard Group

Kenya: Now Students Ask Leaders to Pay Tax

6th August 2007 (Daily Nation)
Youngsters participating in this year's schools and colleges music festival
have asked MPs to pay taxes and support free primary education.
The leaders who have been criticised for an attempt to award themselves huge
benefits, were advised to fight tax evaders.
According to the students, the country would not need foreign aid if all
Kenyans promptly paid their taxes.
"We are talking about promoting positive behaviour change among Kenyans with
regard to payment of taxes, and to remind Kenyans to pay taxes to enhance
our economic independence," said one of the students.

Health facilities

The category was sponsored by the Kenya Revenue Authority.
In their choral verse, We Demand, Kangubiri Girls Secondary said more tax
revenue had increased supply of drugs to public hospitals.
However, they called for the setting up of more health facilities to serve
young people. "Politicians could do better than always safari ya ng'ambo
(Overseas trips). Payment of taxes could save these problems' said Faith
Githinji, a presenter.

A teacher, Mr Johnson Wanyaguthii, said most Kenyans had a negative attitude
towards payment of taxes and asked the students to step up their campaign
against evaders.
Eight categories of music and poetry were performed in the category at Lions
Primary schools, Menengai High and Melvin Jones. The category attracted a
total of 3,750 students.

Nairobi Aviation College thrilled the audience with their song Lipa Ushuru
(Pay Tax) during the family show.

Winners in the KRA category included: Rongo Success from Nyanza, St Marys
Girls (Rift Valley), Webuye DEB (Western), Carol Academy (Rift Valley),
Golden Elites (Nyanza), Nzoia Sugar (Western), Star of the Sea (Coast),
Kevee Girls and Kipsangui Girls High of Western Province.

Educate country
The authority was commended for sponsoring the presentations aimed at
educating the country on tax payment.
"We should be both economically and political independent and cases of
working under unrealistic conditions by donors would be a thing of the
past," said judge Dan Otiende.
Students of colleges and technical training institutes arrived yesterday
ready for their presentations starting today.
The 10-day festival featuring primary and secondary schools, teachers'
training colleges and universities ends on Thursday with a finalists'
concert sponsored by the Nation Media Group.

Tackling tax in Kenya

(Tax Research UK)
It’s not just the Tax Justice Network thinking about tax in Kenya right now. The following is part of a thoughtful piece on tax by Hassan Kulundu published in the Kenya Times today and deserving wider coverage (so I hope they’ll forgive the extensive quote). It draws attention to real issues that need to be addressed in African taxation, and which the Tax Justice Network for Africa will want to deal with:
Taxes and taxation are generally regarded as unpleasant subjects, which call to mind Justice John Marhall’s often-cited dictum that “the power to tax is the power to destroy.” But against this aura of unpleasantness must be set the statement of Justice Oliver Wendell Holmes, Jr that “taxes are the price we pay for civilisation.”

Kenya: Officials Tell Off Tax Evaders

7th August 2007 (Daily Nation)
Tax administrators from 46 Commonwealth countries meeting in Nairobi have decried evaders and frauds saying they posed a major challenge to their work. The 28th annual technical Conference of Commonwealth Association of Tax administrators (CATA) was opened at Intercontinental Hotel on Sunday evening by Finance minister, Amos Kimunya. This is the first time the conference dubbed Promoting Economic Sovereignty through Tax Reforms is being held in Kenya since the tax administrators association was formed in 1977. Speaking during the opening ceremony, Mr Kimunya said developing countries were confronted by challenges in tax collection, particularly from multinational firms. "The globalisation of business has visited unprecedented challenges upon the newly-created revenue agencies. "This is especially with regard to the complex nature of the trade dealings of multi-national corporations with elaborate branch networks abroad," he said. The minister said CATA should seek ways on how to effectively mitigate the devastating effects of tax frauds, evasion and avoidance and money laundering. Complex schemes He said this happens through complex schemes such as transfer pricing and thin capitalisation, among other ways. CATA chairman, Mustapha Mosafeer also singled out these as major challenges. Kimunya said CATA provided a forum for sharing experiences on best practices in tax administration reforms. The organisation deals in technical training and consultancy on tax matters. Mr Kimunya said the tax administration reforms the Government had instituted from 2003, had enabled the country to double its tax collection to Sh380 billion from Sh190 billion in 2002. The Government's target for this financial year was Sh420 billion. Kenya Revenue Authority commissioner-general, Michael Waweru, said revenue collection in several countries could decline due to environmental degradation. He said there was need to find the linkage between environmental sustenability, economic development and revenue collection. "The changing climate patterns, perhaps should begin to act as a wake up call to revenue agencies that revenue figures are under threat," Mr Waweru said.

Kenya's $ 1.5 billion tax scam leaked!!!

(Charter House.zip-Wikileaks)
The tax scam involving Kenya's largest supermarket chain(Nakumatt) and a private bank Charter house bank has been leaked . The alleged scam, involving money laundering and tax evasion, was exposed by whistle-blowers as early as 2004. Investigators believe tax evasion and money laundering worth 10% of Kenya's national income are involved. A recent auditor's report says the scale of the operations "threatens the stability of the Kenyan economy".