By Clive Ayuko and John Otieno
Nairobi, Kenya 19th August 2020
Governments like men are selfish and often enter into agreements with other governments for
various selfish reasons, most of which is in line with the improvement of its social, economic and
political interests. Treaties; however, unlike agreements made between men, those made between
governments (who are composed of men) are not straight forward processes, often require the
involvement of a number of players (Stakeholders) and may take a number of years before such ratification process
is concluded.
This is necessitated by the fact that decisions on treaties which once ratified become
part of Kenyan law, affect all Kenyans at large hence cannot be left in the hands of a single individual or entity thereby requiring the involvement of the public in the ratification
process.
Article 2 (5) of the constitution of Kenya 2010, Section 14 (4) (e) of the Treaty Making and
Ratification Act, 2012 (Rev) provides the legal framework for ratification of treaties by the
Government of the Republic of Kenya. These outline some of the requirement which include: a vigorous public
participation process on the subject matter, a parliamentary debate, calling for and receiving of public
submission on the same by appropriate Cabinet Secretary, a ratification process by the relevant Cabinet Secretary (Minister/Ministry incharge of the function) and lastly the National Assembly who has the final say in this
matter. In a gazette notice dated 13 July 2020 the Government of Kenya through the Cabinet
Secretary for National Treasury and Planning Amb. Ukur Yatan made known its intention to get into
agreements with the Government of the Republic of Singapore and the Government of Barbados for
the Avoidance of Double Taxation with respect to taxes on income.
Keeping in line with the modus operandi characteristic of treaty ratification in Kenya which argues
for comprehensive public participation among the major stakeholders to include the general public
called for REQUEST FOR COMMENTS ON THE AGEEEMENTS ON AVOIDANCE OF DOUBLE TAXATION
BETWEEN THE GOVERNMENT OF THE REPUBLIC OF KENYA AND GOVERNMENTS OF THE REPUBLIC
OF SINGAPORE AND BARBADOS RESPECTIVELY.
The Tax Justice Network Africa and the East African Tax Governance Network, both international Civil Society organizations CSO involved in public sensitization took issue with the new policy directive as outlined in their press release document dated 19th August 2020:
Nairobi, 19 August 2020 – Tax Justice Network Africa (TJNA) and the East African Tax and
Governance Network (EATGN) hereby caution the Government of Kenya (GOK) in its pursuit
of new double taxation agreements (DTAs) with the Government of Barbados and
Government of the Republic of Singapore.
Singapore is globally ranked as the 8th most aggressive tax haven allowing for extensive
avoidance and evasion of taxes from other jurisdictions around the world. Therefore, having
DTAs with both countries doubly places Kenya at risk of eroded tax revenues in a time of
increased debt strain.
In response to a notice issued by the Ministry of Finance, National Treasury and Planning, on
13 July 2020 requesting for public submissions on the respective treaties, TJNA and EATGN
welcomed the change in policy behaviour and submitted comments for the two DTAs on 17
August 2020.
This represents a fundamental shift on the inclusion of stakeholders in treaty making and
ratification processes in Kenya. However, we urge that this process moves beyond invitations
for comments to more constructive consultations, analysis and decision making that involves
other participants including the Kenyan parliament.
Having previously petitioned the High Court -and won- against the National Treasury on the
issue of public participation as related to the DTA with Mauritius, TJNA recognises this
significant step taken by government to begin opening up the process of policy making as
enshrined in the Kenya Constitution.
The Executive Director Mr Alvin Mosioma had previously stated “TJNA intends to ensure that
in future similar tax negotiations are not in contravention with the laid down laws and
procedures”.
Nevertheless, considering the increasing significance of tax havens in the loss of domestic
revenue, the Kenyan Ministry of Finance should note the following four points during this
process.
First, there’s a need to publicly explain why there’s an urgency to sign DTAs with known tax
haven jurisdictions such as Mauritius or Singapore instead of prioritising the implementation
one that has already been developed by the East African Community (EAC) members, who
are Kenya’s largest trading partners.
Secondly, that further to submission of comments, the Barbados and Singapore tax treaties
will require parliamentary scrutiny and public debate under the Treaty Making and
Ratification Act of 2012 (TMRA 2012).
This is in line with the fulfilment of the monist principle in the Constitution; requiring approval
by the legislature on treaties that become part of domestic law, especially if they affect public
finance and the burden of taxation, as laid down in articles 1, 2.6, 114(2), 201 and 210(1) of
the Constitution
Thirdly, there is a need to evaluate both tax treaties in relation to how they are likely to
negatively affect Kenyan tax law. A cost benefit evaluation on the desirability of the Barbados
and Singapore tax treaties as specified in the TMRA is necessary.
This is especially because these treaties entail a restriction on tax sovereignty and have major
revenue implications; they grant tax benefits and exemptions to foreign investors not
available to Kenyan citizens or companies, resulting in reduction of government revenue and
directly affecting the public finances and the sharing of the burden of taxation (Constitution
Article 201).
Lastly, a public impact analysis on the risk of revenue loss will need to be shared for and
national debate. The revenue implications of the various benefits, and possible losses from
exemptions in tax treaties must be evaluated against the conceivable gains, or otherwise, of
attracting investment from abroad.
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