(PHOTO COURTESY)

In the 2021/22 budget statement, Treasury cabinet secretary noted that the country’s tax policies are spread across various statutes which are amended every year during the budget process creating uncertainty in tax legislation.

The cabinet secretary indicated that the government is in the process of developing a National Tax Policy Framework that would not only enhance administrative efficiency of the tax system but provide consistency and certainty in tax legislation and management of expenditure.

Taxes perform specific functions which include but are not limited to raising money to finance public services, providing economic stimulus, promoting equality in the society through redistribution of resources and encouraging changes of behaviour.

A tax system should generate sufficient revenues to enable the government to meet its objectives and improve the welfare of the citizenry. This is mainly achieved through introduction of new taxes, changes to tax rates and bands or reliefs. These are also geared towards provision of economic stimulus and making inflation adjustments.

Over the last decade there has been a mad rush by East African Economies to negotiate tax treaties. Whilst many of them are still under negotiation and therefore not in force, this signifies a change in fiscal policy.

The demand for Double Taxation Agreements (DTAs) has arisen because of various contexts in the region such as: constitutionalism plus demands to implement new public finance management principles; growth in trade and services across countries in the region or with other countries across the globe; discovery of natural resources requiring more inflows of foreign direct investments; and new economic visioning that was initiated at the turn of the 21st century e.g. the EAC Vision 2050, AU Vision 2063, Burundi Vision 2025, Kenya Vision 2030, Rwanda Vision 2050, Uganda Vision 2040 and Tanzania Vision 2025.

Kenya has the highest number of DTAs in the region It has a total of 15 tax treaties with 7 being ratified after the passage of the constitution of Kenya 2010 (COK 2010). The top ten countries in the world that have signed DTAs in the EAC region are as follows: in first place is South Africa which has 4 treaties in force; India, Zambia, Denmark, and Norway come in second place with 3 treaties each; China, Iran, Korea, Kuwait, Mauritius, The Netherlands, and Singapore all have 2 treaties each.

Aside from Tanzania, which has not ratified the regional DTA, all EAC countries are signatories of the treaty, which has not come into effect because of a lack of consensus. Once Tanzania ratifies the treaty it should be in force.

DTAs in the region still differ substantially regarding the permanent establishment, profits, dividends, interest, management or professional fees, royalties, capital gains, other incomes, and the elimination of the double taxation that are open to exploitation through tax evasion and avoidance. As a result, they are potentially harmful to capital importing countries involved.

This year’s State of Tax Justice 2021 updates the findings of our inaugural 2020 report, which provided the first comprehensive, near-global statistics for revenue losses due to cross-border tax abuse by multinational companies and by individuals hiding assets and income streams offshore. This year, we find annual tax losses of US$483 billion worldwide.