Launch of the African Sovereign Debt Justice Network
On January 26th, 2021, Afronomicslaw.org with support from the Open Society for Southern Africa (OSISA) introduced their new initiative “The African Sovereign Debt Justice Network (AfSDJN)”. The AfSDJN aims to address the threats that sovereign debt poses for economic development, social cohesion
and human rights in Africa.

By

Tom Odhiambo

Title – Kleptopia: How Dirty Money Is Conquering the World; Author: Tom Burgis; Publisher: Harper 2020; Pages: 464.

The Greek gave the world many words that today seem to acquire very poignant meaning. Kleptocracy is not a word that one hears in everyday conversation. It doesn’t easily appear in pages of essays analyzing politics in what are deemed democratic or even democratizing societies.

But in the recent past it has crept into special reports about countries whose leaders seem unwilling to step down from office, but who have also become quite rich – partly, if not mainly, because of being in that office.

The standard dictionary meaning of Kleptopia is that of a country whose leaders rob the citizen and use the stolen wealth to stay in power, becoming more powerful the more money they have and the longer they stay in office.

How is Kleptopia related to wealth, taxes, and general progress of a society? Why should we bother about the existence of a Kleptocracy anywhere in the world?

If you read Tom Burgis’ new book, Kleptopia: How Dirty Money is Conquering the World (2020) you will understand why we should all be scared that money from openly undemocratic regimes could be funding institutions (including philanthropies), buying up companies and real estate, paying bills for politicians, among such other activities locally.

It could be money from some Euro-Asian country whose name is difficult to pronounce, or a neighboring African country, or some South American Kleptocracy, which arrives in your country as a donation, or an investment by an unnamed foreign investor (read Moneyland) or even holiday spending.

Yet, such money would have left a trail of suffering, political repression, lost jobs and destroyed livelihoods from wherever it came.

The major point that Kleptopia raises is the possibility of the greedy and powerful rulers actually assuming that public wealth belongs to them, to use and abuse as they wish. But what is even more disturbing is the possibility that the rulers may decree that even private wealth shall only remain so as long as the rulers can and do have a share of it.

This is a scary reality. But it is the reality that Burgis discusses, in what is largely a dramatic text, with acts and scenes, set in as varied places as London, Moscow, New York, Harare, Johannesburg, Kinshasa etc.

Burgis shows that indeed the ill-gotten wealth can and does travel all over the wealth, making merry, purchasing property, educating the children of the kleptocrats, but also paying for intimidation, violence and killing of those opposed to the rulers.

In Kleptopia Burgis examines documents; revisits records; interviews countless individuals; tracks the travel of money and wealth; traces opponents of kleptocrats; meets dedicated civil servants who are ready to sacrifice their careers if not lives to ensure that the state is collects what it is owed; focuses on some of the shady characters who make the wheel of money laundering and tax evasion turn; among many other activities, to eventually produce a scary, often sad, but absolutely dramatic rendition of how the world can easily be bled to death by money and power hungry rulers and ruling elite.

But the tragedy that is dramatized in Kleptopia isn’t really about the bad guys in those God-forsaken 3rd world countries. This story isn’t even about African dictators mopping up all the money they could lay their hands on, selling any little natural resources available and buying expensive property in Europe, Asia or America.

The usual African kleptocrats are in the drama of the story. What is scary about this book is that the kleptocrats, from wherever in the world, can engage in their mischief knowing very well that they can stash their loot in the very western countries that preach to them daily about democracy and how to fight corruption.

Where best to buy a company for concealing stolen money than in London. Burgis shows that London (or any other western city for that matter) has enough lawyers, PR companies, banks, wheeler-dealers, financial investors, lobbyists, old politicians, musclemen or even pressmen to help one have his money stay safe, wherever in the world.

London, despite claims to being a beacon of democracy and integrity, has no qualms receiving, keeping, investing and growing stolen money from other parts of the world, Burgis shows. Its ruling class can easily offer services as board members of any organization – even one run by nefarious characters – for a little monetary inducement.

For Burgis, it is the comfort that money – legal but seeking-to-be-hidden money, illicitly acquired money, money from crime networks – can and does find a home in the western world’s major financial cities. That should worry many who seek a just and progressive society.

To those who wish to have the rich show how they make their money and also pay taxes, Burgis suggests that it will take more than hope, investigation, policy and prayer to get them to pay up and open up about their wealth.

Why? Because very few rich people, especially those in power, would allow scrutiny of the sources of their wealth and questions about their tax obligations. The never-ending story of Donald Trump and tax declaration gives a hint to what happens elsewhere in the world. Trump is actually a character in the text.

In Kleptopia: How Dirty Money is Conquering the World Burgis shows how public resources can be sold cheaply to individuals who on the side would agree to share directly or indirectly with government officials or politicians the spoils of the theft.

Drawing examples from one of the former USSR states, traversing Europe, travelling to Asia and Africa, landing in America, Burgis reveals that such ‘stolen’ resources – sometimes really sold to the lowest but connected bidder, thus robbing the selling country of much needed revenue and subsequent taxes – can end up belonging to anyone anywhere.

For instance, a diamond mine in the DRC can end up being traded by officials in the country and those from a neighboring country to a group of ‘foreign investors’ in Europe who may then use it to raise the stock of their company on one of the European stock exchanges.

The African deal may put a lot of money in some African bureaucrat and politician but hardly any revenue into the public purse. Meanwhile, the locals may be killed should they ask questions about such transactions or their environment may be degraded without any chance of compensation.

Many such deals, spread throughout the world and enabled by what we may call ‘travelling capital’, originating from offshore bank accounts and whose profits are kept in tax havens, happen because of the availability of the chain of willing lawyers, PR companies, banks, states that offer tax holidays and tax havens, inactive or complicit government oversight agencies, investment bankers, among other individuals and institutions.

These individuals and institutions are neither convinced by the moral imperative to ask questions about the sources of such money nor worried about bending the law, where and when needed, to make a profit for their clients or enable their money to cross borders and transit from one bank to another.

Burgis is well aware of the consequences of the asking questions; researching kleptopia; writing about the seemingly ‘upright’ public figures who midwife theft of public resources and laundering of such money, and their more sinister accomplices who won’t shy away from breaking legs, kidnapping or killing on orders from the kleptocrats.

He warns that even apparently independent newspapers and media, under threat of litigation, may not publish findings from such investigations.

So, how do we begin to deal with the dangers of kleptopia? It is a difficult question. But Burgis suggests that all who are worried about how the rich and their networks are fleecing society need to take a moral stand. Or even a pragmatic position.

Yes, it is risky to speak about this subject. But speak we must. We must ask questions. We should hold public institutions accountable. We have to make our own little contribution, even when risky, to the fight against kleptopia.

The writer teaches at the University of Nairobi. He can be contacted at: Tom.odhiambo@uonbi.ac.ke; 0720009155

By

Tom Odhiambo

Title: Moneyland: Why Thieves & Crooks Now Rule The World And How To Take It Back; Author: Oliver Bullough; Publisher: Profile Books, 2019; Pages: 304; Language: English

Often when a Kenyan company’s books are in the red, one will read in the newspapers that a ‘foreign’ investor from somewhere in the world – named or unnamed country – is willing to fund it. In most cases the said investor won’t be named. He – it is rarely a she – will wish to remain incognito for many reasons. But it is possible to hypothesize that such investors are really just Kenyans who had moved money out of the country – to avoid scrutiny by tax authorities or to evade taxation – and are willing to bring it back in the name of a ‘foreign’ investor. Such money, hidden somewhere in some tax haven or invested in another country, under a series of companies, is what Oliver Bullough writes about in Moneyland: Why Thieves & Crooks Now Rule the World & How to Take It Back (2019).

Moneyland reads like a thriller novel. Indeed, it isn’t easy to put this book down. For the first page to the last, it is a race – the reader has to run to catch up with the narrator’s details, as they emerge, linking individuals, institutions, companies, countries, crime, business, media, governments, politicians, presidents, lawyers, tax officials, etc in a shocking web of how money started to travel around the world in the post-2nd World War moment to today. Then, the travelling money was real cash, American dollars mostly. Today, money is moved or can be moved across country borders in cash, in gold, in the form of houses, cars, and electronic transfers.

This is a book that is easy to ignore whilst browsing the bookshelves at the local bookstore. Many academics would probably not bother about it, unless they read its review or have heard someone talk about it. Its title may not necessarily attract the attention of a lawyer or a tax justice activist or development expert, or anyone who is interested in how government collects its revenues and how individuals always try to dodge taxes. Indeed, its story begins in a nondescript neighbourhood of London, where one can buy a readymade company, which can be used to hide one’s money and investments etc.

But the real interesting part of the introduction is when the author narrates the real beginnings of the term ‘offshore’. That this word came from radio pirates is in itself a fascinating story. Just like the individuals who bank beyond their countries’ borders because they want to avoid the prying eye of the curious journalist or taxman, the term referred to radio stations broadcasting from ships moored just beyond the boundaries of Britain, but within reach of young audiences who wished to listen to music beyond what BBC offered at the time. This is how Bullough describes the offshore radio stations: “Offshore radio stations were as physically present as any other broadcaster, in that you could easily find their broadcasts on your wireless, yet they were legally absent, and very difficult to deal with.”

That description aptly summarizes ‘Moneyland’, a world where the owners of the banked money don’t exist under their legal identities. Instead, their identity is concealed under an onion-like layer of company after company. In this world very few prying eyes can ever see beyond the second or third layer, if they can survive the sting of the onion – yes, Bullough shows that people have lost their jobs or been killed for trying to look too deeply into the concealment rings that surround companies that are used to keep money in Moneyland.

One of the most important features of Moneyland is ‘shell companies’ – entities that are legal but largely for reasons of hiding the owner of some property or money. Shell companies have been used for decades to hide licit money, so that it may not be taxed or to avoid its confiscation in case the owner is what is described as a politically exposed person; or they are used to ‘clean’ illicit money by way of laundering it through legal acquisition of property, which can in turn be sold and the money banked legally! Bullough writes, “It is not impossible for law enforcement to see through shell companies or to confiscate assets held via corporate vehicles, but it is expensive, laborious and time-consuming, even if you try to cut corners.”

However, shell companies cannot succeed on their own without help from law firms and banks. It is banks that enable offshore banking through transfer of money from one branch to another or through deposit boxes. Bullough shows that banks are willing to bend the rules and practice private banking where ‘no questions’ are asked about high net worth individuals when they open accounts. Such individuals may be politicians or businesspeople who wish to keep their money away from the public or even private eyes of others. In such cases banks can aid money laundering, can enable theft of public assets or money, and can, knowingly or unknowingly aid in sustaining repressive regimes – think of many African dictatorships and try to find out who and where they kept their money.

But offshore banking and the urge by the moneyed to keep away from the taxman and possibly avoid change of government regimes, and also keep as much money as hidden has also spawned what can be called mail order citizenship. With enough dollars one can buy a passport and citizenship or permanent residency in many places in the world today. Today several countries advertise globally, inviting rich people from other countries to invest in elsewhere and become naturalized citizens. In such countries, not many questions will be asked about the sources of one’s wealth, and one can move into their new country to avoid taxes or prosecution, if they had committed crimes.

Moneyland is a world or the rich and superrich. It is the zone for the plutocrats, the men and women who have amassed enough wealth to be able to guarantee themselves and their offspring a very comfortable life. Such individuals, as Bullough shows, are citizens of the ‘world of consumption’, where money is not a problem. Thus, whether in New York, Amsterdam, Beijing, Cape Town, Nairobi or Vancouver, plutocrats are largely identified by their high consumption patterns and the fact that these are individuals whose money is mostly liquid, thus available for them wherever they are. This means that they are not tied to one place, country, or continent. Unfortunately, plutocracy is a world, therefore, whose citizens will happily dodge taxes, launder ill-gotten wealth, and support undemocratic regimes if such regimes serve the interests of the plutocrats.

In an optimistic ending of his narrative, Bullough suggests that something can be done to stop the plutocrats and crooks that steal and bank money well beyond the reach of governments and tax agencies, and are unfairly amassing wealth to the detriment of the many. But as he shows, despite the USA leading the rest of the world in making it difficult for Swiss banks to keep information on their clients hidden, the latest best tax havens are in several American states. Also, the American real estate sector offers very many wealthy people all over the world the opportunity to hide their money. This simply means that the fight to against Moneyland is a tough one.

Which is why Bullough ends Moneyland: Why Thieves & Crooks Now Rule the World & How to Take It Back in a hopeful rather than radical tone, “So what do we as citizens need to do? We need to know who owns what; we need to put crooks in jail; we need to stop our cities from laundering the stolen wealth of the world. And we need to support any politician prepared to build the coalitions required to do this patient, taxing, technical and unglamorous work. Only by doing this can we truly take back control of our economies and societies and halt the wholesale looting of the world that threatens us.” What can you do to add to Bullough’s call?

The writer teaches literature at the University of Nairobi. He can be contacted at: Tom.odhiambo@uonbi.ac.ke; 0720009155.  

By

Tom Odhiambo

Title: Taxation and Gender Equity: A Comparative Analysis of Direct and Indirect Taxes in Developing and Developed Countries; Editor(s): Caren Grown and Imraan Valodia; Publisher(s): Routledge, IDRC 2010-06-10; Pages: 352; Language: English

The editors of the book Taxation and Gender Equity are quite explicit from the beginning about why they bothered to study the gendered nature of tax and taxation but also why it is important to consider the question of how women and men pay tax.

In the introduction, they write, “Drawing on a three-year eight-country study Taxation and Gender Equity outlines why gender equity advocates need to interrogate the revenue side of public finances, and why tax analysts and policymakers should carefully consider the gender impacts of tax policies and tax reforms.’

In other words, although a rarely discussed subject, evidence has tended to show that women and men pay tax differently. And this is a worthy subject to consider when dealing with the question of revenue collection and taxation, especially in Africa.

But why should we be bothered about the differences between the tax burden of women compared to that of men?

After all, every human being pays some tax at one time or another. More accurately, why would anyone wish to read the book Taxation and Gender Equity: A Comparative Analysis of Direct and Indirect Taxes in Developing and Developed Countries (Routledge, 2010) edited by Caren Grown and Imran Valodia?

Because how, when and where women and men pay tax often differs carrying with it hidden gender bias in the taxation of women compared to men.

In the first chapter of the book, the author notes that among key factors to consider in the study of gender and taxation, and which informs research in Taxation and Gender Equity, include what has been described as “‘stylized facts’ about gender differences in economic activity that should be used to understand the impact of taxation on men and women.

They note that these facts are: “gender differences in paid employment – including formal/informal employment, wages and occupational segregation; women’s work in the unpaid care economy; gender differences in consumption expenditure; and gender differences in property rights and asset ownership.”

Taxation and Gender Equity seeks to provoke a nuanced debate on how gender differences; employment or lack of it; (unfair) or different pay structures; general distribution of income; household expenditures; taxation models, among other factors, affect women compared to men when it comes to paying tax.

If one cuts out the jargon and its seeming academic tone, this book should be a general reader among advocates of gender equity and tax justice, policymakers, politicians, bureaucrats, tax experts, or even the public.

For the questions it poses tend to appear on the margins of public debate on earnings/income and taxation.

Yet these questions are quite urgent. For instance, how should a family that depends on a single earner of income be taxed?

Here it may be worth considering that the gender of the family head and of that single breadwinner matters – men may most likely find regular pay for work; women may only manage to work for irregular pay as social demands of caregiving may not allow them to work longer and regularly.

How much tax does such a family pay considering that it may have a higher household expenditure, especially if there are many children and other dependants? Here, considering the age of the children as a factor in consumption; and the fact that some of the children may not add much to the unpaid household labour.

What could be the differences in the tax paid if we compare the tax as paid by a household headed by a man to that headed by a woman?

Taxation and Gender Equity offers quite interesting propositions in discussing the implication of gender differences for income generation, the primary tax burden for the individual, the explicit tax paid and the hidden taxes etc.

Take the question of work – finding employment; the type of work; the compensation; the tax paid on the compensation; the explicit and implicit biases in personal income tax burden etc.

What are the differences in the experiences of women and men when they look for work? Do women face similar obstacles to finding work as men? What do the differences in the compensation for women and men imply for their tax obligations?

The answers to these questions seem obvious but they are complicated, depending on the society one is studying or the culture one is investigating or the work in question.

Women are generally disadvantaged when it comes to finding work. They are generally less skilled and least qualified because of lack of or poor access to education. They are likely to be the caregivers at home. They may be forced by marriage or childbearing to give up work and depend on men, or relatives, or charity, or the government.

All these facts have implications for the personal income tax that a woman pays compared to a man. Staying at home means one significantly reduces their chance of finding work or networking with those who could connect them to work opportunities. Yet the individual will still pay taxes when they have to pay for goods and services that are taxed.

But even when work is available, women are likely to receive less compensation than men. This is a historical, cultural and almost ‘normalized’ practice the world over. It doesn’t matter whether one is considering developed or developing economies.

Research shows that women will somehow be paid less and are likely to spend more at home and on themselves compared to men. Food, clothes, medical care, schooling, among other needs for children or the household are the concerns of women.

This situation implies that even employed women who are paid well but who have children and dependants at home will suffer more taxation on their income than their male counterparts.

Or, think of the rural-urban divide, which has major economic implications for women compared to men. In most African countries, women still stay at home (in the village) whilst men travel to look for work (towns and cities).

Although the men may be taxed directly and indirectly on income earned, whatever money they send home to their wives (and mothers) is subject to a series of taxes. They may be taxed by the money transfer service provider – on behalf of the tax authority; they will be taxed on goods they buy –VAT; and they may end up paying for several other local taxes.

Yet, even if the woman in the village works on the farm and is able to earn some income, the land and any revenue generated thereof may still be registered in the name of the man. Such a situation is worsened in cases where the marriage isn’t ‘official’.

In other words, the woman may create wealth, for which she will be taxed, but the wealth will benefit the man, who has the official authority to transact in it or even transfer it.  

To speak about the implications of gender differences on revenue and taxation, and the biases – obvious and hidden – that often saddle women with a higher tax burden compared to men, is to suggest a more careful relook at policy and laws that determine tax collection.

Gender equality is not just a matter of politics and of adding up numbers. It is a question of constant revisiting of the processes by which we make laws, asking all the time if the laws are sensitive to gender differences, and creating awareness in all institutions on how to address the likely deficits in the legislation and policies dealing with taxation, especially where women are concerned.

This, in the end, is the moral argument of Taxation and Gender Equity.

The writer teaches literature at the University of Nairobi. He writes on tax because he pays tax. He can be contacted at tom.odhiambo@uonbi.ac.ke or +254720009155

(PHOTO CREDITS: Courtesy NATION)

Julians Amboko of NTV Business Redefined hosted Alvin Mosioma, Executive Director of Tax Justice Network Africa (TJNA), and Lena Onyango, an advocate and specialist on tax matters, to discuss the Kenyan Double Taxation Agreements with Barbados and Singapore.

JULIANS AMBOKO: Tonight, we are focusing on the pertinent subject of double taxation treaties.

Double Tax Treaties are agreements reached between tourist jurisdictions rather allocating tax rights and ensuring there is no imposition of tax on the same income by multiple jurisdictions.

Such treaties seek to catalyse trade and investment flows between two jurisdictions.

This notwithstanding the treaties are open to manipulation through practices such as treaty shopping by briefcase companies.

Kenya is currently pursuing double tax treaties with Singapore and Barbados and tonight, we’ll take a deep dive into this with Alvin Mosioma who is the Executive Director at the Tax Justice Network Africa and Lena Onyango, who is an advocate and specialist on tax matters.

Welcome on set and just to kick it off, Alvin, I was reading the TJNA analysis on this matter.

The title is Trick or Treaty, why is this the case?

ALVIN MOSIOMA:  Well as you rightly said in the beginning, really, the purpose of double tax agreements is to help ensure that companies are not being taxed twice. 

On one side  where they’re registered and on the other side where they’re doing their business operations, but what our researchers have shown is that many a times  these double tax agreements result  to double (non) taxation so the  companies find tricks to basically beat the system and shift profits  away from the jurisdictions where they’re operating.

Therefore, we have been very critical about particularly the double tax agreements that are being negotiated and signed with these jurisdictions that are g considered as e tax havens.

AMBOKO: Alright, and crossing over to Lena clearly there is an issue of merit and demerits here, from your assessment, what do you think outweighs the other in this case?

LENA ONYANGO: Coming from a government and private sector perspective, the whole idea of double tax treaties as you have correctly defined, is to avoid instances where either a person is taxed twice or the same income is taxed twice in different jurisdictions .

Now the advantage, and I believe the whole intention, of a double tax treaty is to foster trade between contracting entities  which are between two party states.

Over and above fostering trade, they encourage foreign direct investment from foreign jurisdictions into Kenya.

The reason being if they’re pumping money into the Kenyan economy, they will not [like to] be taxed both in Kenya and their jurisdiction of the residence of the holding company or their parent company.

From a business perspective, I think double tax treaties open avenues that were probably not there and it does not necessarily come across for goods [alone], it also cuts across the service sector so double tax treaties are favourable and are actually a good move by the government in terms of trying to widen the tax treaty network in Kenya.

AMBOKO: Coming back to you, Alvin we have a precedent in this country where not too far back, the double taxation treaty with Mauritius was nullified by the high court thanks to your organisation.

Why is this the case and are we in trouble again with what we are pursuing right now with Singapore and Barbados?

MOSIOMA: Yes, we are most likely to be in trouble again.  The case we filed in court against the Kenya-Mauritius double tax agreement was really built on two foundations.

One, we were making an argument that the due process of the law was not followed.

There is a very clear laid out procedure in terms of what governments should be doing when they are negotiating and signing double tax agreements.

Some of these provisions, for example, in the  new constitution [stipulates] that:  parliament needs to be involved  in the ratification process; there should be measures for public participation; the government needs to ensure that they are conducting sufficient cost-benefit analysis in order to argue and say [any] treaty with a particular country make sense.

In the case of Mauritius, we were convinced, and the court saw it right, that this (procedure used in negotiating and signing the Mauritius double tax agreements) was not the case. We [argued] and indeed we were right that the treaty with Mauritius was opening up the country for significant resource leakage both through the different avenues of abuse be it treaty shopping, transfer mispricing, or round tripping where you find Kenyan entities moving off to Mauritius  to take advantage of particular  provisions in that particular treaty.

In the case of Singapore and Barbados, we are very critical of this and we have also made our submissions to the government on the technical aspects.

This is really, to my knowledge, the very first time that the government has taken the step to collect views from the public in terms of what do they feel about this particular treaty.

Nevertheless, in essence, I think my real question is why Barbados? I mean a country which has got about 300,000 people or why Singapore? Which is ranked as number six as one of the most secretive and one of the largest tax havens in the world.

Why these jurisdictions?

This is especially critical in the context of Kenya committing to the African (Continental) Free Trade Area.

We should be looking at focusing on signing double tax agreement with jurisdictions that we’re actually doing business with like Uganda, in the East African Community (EAC) and others.

I think this should be having more priority than focusing on jurisdictions that are largely tax havens which are in my sense are very open to abuse.

AMBOKO:  But Alvin just to be fair to the government and as I bring in Lena on this point we might not know much about Barbados in terms of the trade volumes because of scarcity of data but we do know something about Singapore.

I mean exports worth about KES 2 billion, imports about KES 6.8 billion, over the last two years. We’ve seen an increasing partnership between Kenya and Singapore in terms of data transfer as well as investment flows. Clearly there seems to be a case here for an agreement with Singapore.

Lena what are your thoughts on this?

ONYANGO: Amboko I agree with you on that.

There has been a substantial increase in investments from Singapore to Kenya that I’m personally aware of [business] now doing affordable housing projects in Kenya.

I think let’s not paint DTAs to be a bad thing in the sense that we cannot pick on a country like Barbados just by virtue of having a population of about 300,000 vis a vis the Kenyan population but I believe between Kenya and Barbados there are certain trade activities, and correct me if I’m wrong but I understand that the key intention of the government entering into a DTA with Barbados was to drive the financial services sector.

The government is really keen on having Kenyan financial institutions setting up and operating with Barbados and that creates also bigger opportunities from a Kenyan perspective.

So the DTAs [should not be perceived as working] against Kenya but I’m also looking at it from the perspective that it has opened doors for Kenyan institutions to set up in other jurisdictions and therefore we’re growing our economy and of course the Barbados economy benefits as well.

AMBOKO: Alright and I’m sure Alvin you have a rebuttal to that but even before we get into that just to throw something at you.

I was reading the critique of the TJNA around this whole issue and one of the issues you raised and recommendations really tabling is the matter of limitations of benefits.

To the best of my understanding this is catered for when you read the income tax act Section 41 clearly spelling out this issue.

If you consider that all these tax treaties are coming post January 2015, when the income tax act rather came into force, don’t you think this matter is addressed?

MOSIOMA: Okay I’ll respond to that later but let me first address the question of investment through Singapore, the one you listed earlier about investments that are being channelled through Singapore and Mauritius.

What you note is that in real terms many of these jurisdictions that are considered tax havens have positioned themselves globally, and have designed their domestic tax laws deliberately as conduit hubs.

So in essence what I’m saying is that it’s not rich Barbadians that will be channelling their investments to Kenya, it’s not Singaporean entities that will be channelling their investments in Kenya but most likely you would find is Chinese investments, American investments, German investments.

We have seen there is evidence for example in the last expose of the Paradise Papers where you found a treaty that had been signed between Senegal and Mauritius.

Canadian companies were using that as an avenue to move to Mauritius, set up base there and then use it to come into Senegal as a Mauritian entity.

This is what we are literally seeing and this likely what’s going to happen when you have these treaties being signed with these jurisdictions, when they themselves don’t have substantive economic muscle but are positioning themselves as conduit countries to channel investment.

If you look at Mauritius, it is really marketing itself globally as the so-called gateway into the continent which in my own sense is not really a gateway but providing a getaway car for tax planning and tax avoidance.

To the second question you raise about limitation of benefits, in principle yes, a limitation of benefits can act as a very good instrument to be able to prevent tax abuse in a treaty network.

However, this only applies in cases where the substantive investment is coming from that particular jurisdiction.

For example if you were to have a situation where Kenya is signing a treaty with Germany and the investments are being channelled directly from Germany, as it were foreign direct means coming directly from that particular country, then the limitations of benefit would work.

Yet when you have the situations where the treaty that is being negotiated and being signed is with a jurisdiction that is being considered a tax haven we must take note that tax havens really provide two things, Julians, tax havens provide secrecy and they provide low taxation.

They provide incentives that encourage companies to use those jurisdictions as conduits for channelling investments into other jurisdictions and taking advantage of the particular provisions of those double tax agreements.

So, in essence we are not against double tax agreements per say, actually we have been campaigning and pushing for the Kenyan government to encourage the colleagues in Tanzania to sign the East Africa Double Tax Agreement.

I think that in the context of the Africa Continental Free Trade Area (AfCFTA) we feel that the Kenyan government should encourage a broader treaty network because true it creates an enabling environment for investment but we are critical of treaties that are being signed by jurisdictions that are considered tax havens.

This is the case with Singapore, and it is also the case with Barbados.

(3 MINUTES BREAK)

JULIANS AMBOKO: Welcome back to business redefined.

Tonight, we are focusing on the issue of double taxation treaties between Kenya and other jurisdictions particularly the pursuit of such treaties with Singapore and Barbados.

On set I have Alvin Mosioma from the TJNA and Lena Onyango who is a tax analyst and also legal professional focusing on the subject.

Before the break we were discussing several issues including some of the challenges which were presented as well as opportunities.

Lena, on the issue of Singapore and Barbados being perceived as tax havens and could lead to revenue seepage, many are curious to know to what degree would the Foreign Account Tax Compliance Act (FACTA) which has been enforced in the United States play a role in terms of disclosure of some of these ventures where a lot of concern is coming about?

What could this translate into for a country like Kenya?

LENA ONYANGO: Amboko, FATCA is the US mechanism for getting financial information about its residents in other jurisdictions.

It is similar to the EU Savings Trade that they call EU-STD. Meanwhile Kenya has signed up to the automatic exchange of information a project that has been driven by the OECD and the G20.

Basically, the meaning, or the effect of this is that financial information between different countries will now be automatically exchanged annually between the revenue authorities.

If you look up the double tax treaties for both Barbados and Singapore, they provide for exchange of information.

Moreover, with Kenya being a signatory to the automatic exchange information mechanism then that means that if there is any person who moves money from Kenya to a financial institution which could be a bank or a broker either in Singapore or Barbados then that information would be relayed to the KRA.

KRA will therefore be able to compare what declaration the taxpayer has made in Kenya vi-a-vis the information that they have obtained and will be able to carry out investigations on that.

So, I’m not really worried about the DTAs between Singapore and Barbados in so far as illicit financial flows is concerned reason being [that Kenya is obligated are over and above them [thanks to being a] signatory to the automatic exchange of information.

This is required for companies that have cross border transactions, meaning, if a Kenyan company trades with a Singaporean company or a company based in Barbados there will be a transfer pricing policy, that KRA approves after it is shared with them.

This ensures that whatever inter-company transactions take place, the price at which those transactions are charged then will have to be based under the arm’s length principle.

This means that they have to be reasonably priced and I believe Alvin can confirm that in the case of illicit financial flows about 80% of it is through transfer mispricing.

So [with these measures]  I feel that as a country [if we utilise the existing legislation to tackle]  the concept of transfer pricing legislation [together with] automatic exchange of information  then don’t think we should be worried about the issue of illicit profits transfers from Kenya.

AMBOKO: Alright Alvin I mean clearly Lena and I seem to be on the same page. We don’t seem too bothered as far as this issue of illicit flows is concerned, even the provisions of FATCA, what’s your take on this matter?

ALVIN MOSIOMA: Well I first I agree with Lena that transfer mispricing, as it were, is the largest avenue for resource leakage for the  phenomena of illicit financial flows.

What we note is that countries either don’t have the capacity across the continent or they don’t have sufficient laws in place to be able to address the challenges that are related to transfer mispricing 

Above all that if you really look at the concept of transfer mispricing, today we live in a world where over 80% of transactions) through  intellectual property, through online transactions, the Uber’s, the two trillion dollar Amazon which is really doing transactions online the question of transfer pricing becomes really difficult to tackle.

This because there’s no real market value for particular services and there’s no particular brand value. What is the price of what Google as a product or as a brand? What is the market value?

So, it becomes really difficult to tackle that question of transfer mispricing because of the global shift we are seeing towards trade in services as opposed to trade in goods.

On the question of automatic exchange of information here I would like to differ because what you note is that the framework of automatic exchange of information was a setup to [only really] tackle tax evasion.

For tax avoidance, therefore, I don’t believe that automatic exchange of information is the appropriate tool to address this kind of profit shifting.

Here I would recommend the country by country reporting which I think has been a provision whose conversation has been started under the OECD.

However, what we are seeing is that that thresholds that have been put for companies to be able to report on the country by country basis are too high to be useful for developing countries particularly and more importantly in Africa.

So, yes, though I think that automatic exchange of information in double tax agreement are important in determining transfer pricing relations that are being put in place; I still believe that there are significant  loopholes open to abuse.

Ultimately in the efforts for countries to generate more revenue these double tax agreements are more bad than they’re good for the country.

AMBOKO: Still within the context of exchange of information and of course the transparency within which this will take place, Lena looking at this within the context of the conventional mutual administrative assistance agreement, do you feel we have another safeguard as far as that is concerned regarding the concerns being raised by Alvin?

ONYANGO: I think you cannot take a one-way approach; we have the DTA’s, whose transfer pricing the guidelines in Kenya which are enforced in the country.

Over and above that Kenya has signed up to the automatic exchange of information this is now, of course, the common reporting standard together with the [OECD] framework around it.

So if you also look at the development in terms of legislation, the commissioner now has a right, if [it is deemed] that a tax payer has just made an arrangement for purposes of avoiding tax, to initiate the penalties that are double the tax that would have otherwise been paid.

To build up on that if, even on a domestic front, there are these punitive measures that have not been [utilised yet] to discourage this kind of arrangement, then I this this is a good reason why I believe the that provision iss sort of good,

It is [also] not a blanket provision for abuse by the commissioner if you, Amboko, probably shifted 100 million to Barbados then you’ll be automatically [liable] to pay double the tax, [because it must seek out] what was the intention [of the transfer]?

It must ask, what was the commercial benefit that you were going for, thinking about or wanted to obtain by investing in that other country.

For us in the legal front we have also noticed this a shift in decisions of the court especially in the UK [that in as much as tax avoidance is legal, it becomes an abuse of treaty if you plan your affairs without a valid commercial perspective or without having a commercial justification for it}.

So, there must be a definite need for commercial justification when taxpayers are making these kinds of arrangements.

AMBOKO: [….]

Meanwhile, there is a gentleman asking why Alvin has evaded the question on the limitations of benefits. Does it apply to all transactions in a DTA irrespective of FDI coming in or not, what’s your take on this Alvin?

MOSIOMA: So as I said earlier, limitations of benefit provisions are effective in situations where the investments are directly coming from the country of origin, the country where those investments are coming from and not a conduit country.

In a situation where, as I said earlier, with a particular focus on tax havens what you find is that the investments are channelled from country A through country B before they land in country C and that [is clear from the] example I gave of the Paradise Papers expose of mining companies.

We even had the case in Uganda of an oil company that was using Mauritius as a conduit to invest into there, yet the company actually came from the UK.

So, in situations like that when you find that the domestic law of these tax havens is designed in a way that it encourages companies from the investing countries to use them as a conduit to invest in other countries that is when limitations of benefits becomes ineffective in my own opinion.

AMBOKO: Okay, I have just about a minute to go Lena very quickly your closing remarks

ONYANGO: Just to close Amboko first thank you for this opportunity, I’m really happy that as a country we are having this conversation.

I feel that there’s not much awareness around the effects of double tax agreements and as Alvin has stated, the whole idea of public participation should not just be limited to stakeholders.

Secondly, parliament should also be involved; members of the public should also be more proactive because these are decisions and agreements that are going to have an impact on them one way or the other.

So my parting shot is just to say I feel Kenyans need to be more proactive on some of these things and with the tax justice network and the KRA. I feel a lot of awareness needs to be raised over the impact of such kind of agreements.

AMBOKO: Okay, Alvin very briefly your closing remarks.

MOSIOMA: I fully agree with the final remarks from Lena.

I think that there’s really need for more public participation in this process because ultimately it is about where the money that is financing development is going to come from.

What we see across Africa and even in the case of Kenya is that there’s a huge shift of the taxation burden to low income earners while those that are in the top categories are getting away with it because they have found ways of playing with the law and finding loopholes particularly in the double tax agreements to shift their profits and minimise their tax obligations.

It is for this reason that we feel that public participation in the tax formulation processes is very instrumental and that’s the work that TJNA was established to do.

AMBOKO: Alright, and those comments by Alvin take us to the close of Business Redefined.

The following conversation was edited for repetition, proper grammar, and improved meaning for purposes of clarity.

By

Tom Odhiambo

Title: Taxing Colonial Africa – The Political Economy of British Imperialism; Author: Leigh A. Gardner; Hardcover, 271 pages; Publisher: OUP Oxford, 2 December 2012; Language: English

Most of modern Africa, with the exception of bits of the continent, is largely a colonial creation. And by this we do not mean the geographic boundaries and the political systems only. We also mean the structures that define the lives of Africans today, from culture, to social conduct, religious beliefs, politics to economics etc.

Today’s African, even when she claims to not follow the European, Asian or Arabic religion; or when he proclaims his ‘Africanness’ for everyone to hear (mostly in a European language); or when they conduct their lives in what has become commonly known as the ‘African traditional’ way, are still products of European thought and practice.

Thus, although we speak today of a globally connected Africa, an Africa that aspires to develop on its own, many commentators still argue that African progress won’t happen until Africans decolonize their minds and ways of life.

But is this possible, or even a worthy effort? Can Africa set itself free from its colonial heritage? Is it even possible to think of Nigerians, Ghanaians or Kenyans not behaving in some kind of ‘British’ manner?

Can the Congolese, Ivorians or Algerians fully exorcise the ghosts of their French connection? Much of Francophone Africa still designates its currency in the shadow or image of the French franc despite France itself using the Euro.

Africa will always be a child of its colonial ancestry. Which is why even in tax matters, there are still lessons to be learnt from the colonial enterprise, considering that economic historians have always argued that the British Empire was first a business and only later a state.

The settler economies were really private business entities, which only later needed an organized state structure to protect them against competition from business by the other races in the specific country, or from likely external aggression.

Thus, in Kenya – and other colonies – non-Europeans couldn’t farm specific crops or trade in certain goods or render particular services.

However, a modern state needs money all the time to survive. Bureaucracies tend to consume without producing much. Taxes keep most states going, especially if they have nowhere to borrow from.

Colonial states had to find ways of economic survival beyond what their mother country could give them. Therefore one may argue that by understanding the tax models of the colonial state, we might gain better insights into the operations of the (postcolonial) modern state.

This is why a book such as Taxing Colonial Africa: The Political Economy of British Imperialism by Leigh Gardner (Oxford, 2010) is worth reading today. The book is based on colonial taxation records in Kenya and Zambia. 

Gardner digs into an incredible amount of colonial data to show how the British colonies of Kenya and Northern Rhodesia (Zambia) raised revenue/taxes; how the collected taxes were used; where they were spent; what were the economic and political implications of the tax policies; who collected the taxes; who decided where they were spent; what were the implications for the colonies as they progressed to independence, among other considerations.

The broader question here is: what can we learn from this taxation history today?

Taxing Colonial Africa makes a compelling case about the ‘burden of the Empire.’ What really was the cost of running the colonies? Who bore that cost? Where would the colonial government have raised revenue from if there weren’t any significant exports?

Were there direct material benefits for the British government? Who gained from the colonial enterprise in the end? The British or the independent states?

Gardner shows, in various ways that the answers to these questions are difficult to come by, mainly because few people have bothered to study how the colonial system was financed.

But Gardner argues that there is no doubt that that much of the money needed to pay for goods and services to oil the colonial administrative machinery had to come from the native populations.

The poll or hut tax was a major form of raising money in the colonies as it was easy to collect.

But revenue could also be extracted from taxing trade – exports and imports, where such happened; the government could also raise taxes from minerals and other local resources such as cash crops; it could levy local excise duties; it could raise fines, say from the courts; it often could earn or impose fees from services it rendered; or road and transport toll.

However, the colonial administration was generally expensive because the salaries of the administrators was set in London, according to Gardner. Yet they had to be paid from local resources.

Consequently, the local administrators had to find means to enforce revenue collection to guarantee the running of government services. Gardner argues that the colonial administrators would often find a way of working with the local elites in order to ensure less resistance to their rule as well as to their tax policies and practices.

Indirect rule was one of the ways of ensuring that the local chiefs and councils of elders were complicit in the taxing of Africans for the benefit of the colonial administration.

Yet the colonial administration struggled to balance its books from local taxes. The poor revenues in the colonies could account for the poor public expenditure. In other words, the government could not commit itself to spending money on schools, hospitals, roads etc, when it actually didn’t have the money.

This scenario explains why most newly independent African countries weren’t really worth anything much, economically. They had no educated and skilled people to take over from the departing administrators and professionals.

They didn’t have adequate roads and transport services, making intra-country administration and governance difficult. In some places medical services were missing and have hardly been established up to today.

These countries were also saddled with the expense of paying the departing colonial officers compensation for terminated services as well as retirement benefits in foreign currencies. Many African governments discovered that they couldn’t easily enforce tax collection.

The struggle for independence had been waged precisely because of unfair taxation. They had debts, owed to the former colonial masters.

For instance, Kenya had to take a loan from the British to ‘buy’ back land from the British settlers; which mostly ended up the property of the new/old African elite in the country, who were less inclined to pay taxes on it.

Although some colonial states had budget surpluses at some point or another in time, most of them were struggling financially at the time of decolonization.

Even more troubling for the newly independent African countries, the colonial administration hadn’t invested in policies, structures and manpower to enable the new government collect taxes in an acceptable manner.

Tax evasion and poor tax collection that most African countries suffer today are direct consequences of colonialism.

It seems as if there is a congenital problem in paying taxes in Africa considering that as a form of modern economic and political order, taxation by government tends to be seen as discriminating to the poor.

The common person tends to argue that the rich hardly pay taxes and the government generally wastes the monies it collects.

Although based on the analysis of the tax policies and practices in two former British colonies, Taxing Colonial Africa is a worthy book to read.

It leaves no doubt that in order to understand how and why the question of taxes and taxation is a vexing one in Africa today, everyone interested in it has to go back to the archives and decode how the mzungus decided on levies, collected and used them.

The writer teaches literature at the university of Nairobi. Tom.odhiambo@uonbi.ac.ke. He can also be contacted at +254720009155.

(PHOTO CREDITS: Courtesy NATION)

By

Leonard Wanyama

A version of this article was published in the Daily Nation on 15 September 2020

One of the most perturbing government initiatives in Kenya is the pursuit of double taxation agreements (DTAs) without having an implementation policy in place.

This has left the country exposed to the risk of having its domestic revenue mobilisation efforts undermined by illicit financial flows especially when negotiated with countries that are known tax havens.

Recently Kenya’s Ministry of Finance asked for public submissions on a DTA with Singapore and has been actively working to operationalise a DTA with Mauritius that was previously held up following a challenge in court by Tax Justice Network Africa (TJNA).

It should be noted that according to the Corporate Tax Haven Index both Singapore and Mauritius are in the top 20 most secretive, aggressive and extensive jurisdictions that help multinationals escape paying taxes thereby eroding revenue collection measures in other countries around the world.

Similarly referred to as double taxation treaties (DTTs) or double taxation avoidance agreements (DTAAs), DTAs are international bilateral deals that aim at determining taxation rights between multiple jurisdictions.

The purpose of DTAs is supposed to encourage the sharing of tax information between jurisdictions and promote foreign direct investments by eliminating double taxation.

This is because double taxation, that is, the imposition of tax on the same income by multiple jurisdictions is perceived to discourage the conduct of international trade by dampening foreign direct investment and eventually slowing economic growth.

However, while DTAs are expected to be good instruments in the short term for taxpayers engaging in business across borders, the secrecy and opacity associated with their negotiation plus linkages to tax havens encourages money laundering or other illegal activities that harm countries and the world economy in the long term.

Also, if not properly negotiated and structured according to best practice or international commitments, DTAs serve as a channel for tax avoidance. This is legal planning of an entity’s financial affairs to reduce tax liability within a single territory or several territories to one’s own advantage.

Whereas, tax avoidance may not be an illegal practice, it is considered immoral based on the impact of undermining efforts towards domestic revenue mobilisation and self-sufficiency particularly in developing countries.

For example, the dangerous consequences of tax planning as a result of DTAs can be seen in a recent report by Finance Uncovered and the Daily Nation on how sports betting giant SportPesa dogged its Kenyan tax bill obligations by ‘shifting’ its profits to the United Kingdom.

SportPesa’s UK subsidiary SPS Sportsoft transferred GBP 42 million (KES 5.8 Billion) from its Kenyan operation Pevans East Africa by claiming payment charges for supply “IT and services” used to conduct betting operations within the country.

Despite both being SportPesa facilities, this overcharging of a Kenyan entity for technical services by a UK entity denied the government an opportunity to accurately tax the company on account of an existing 43-year old DTA with Britain.

Such transfer pricing legally allows the manipulation of charges between subsidiaries of a company in different countries to shift profits out of higher tax jurisdictions.

Moreover, such loopholes in DTAs arise as an abuse of the “arm’s length principle” (ALP) which contends that even as entities within the same company, a transaction of parties that are considered subsidiaries of the same company are viewed as independent and on equal footing.

This provides an opportunity for the charges to get inflated, thereby not comparable or realistic if the services were provided at market rates.

Further, it restricts government from raising the necessary revenues needed to deliver better services domestically, ultimately limiting its pool of resources needed for sustainable development.

Kenya has pursued a total of 48 DTAs since independence. At various stages these have been considered, negotiated, concluded, signed and enforced without having a DTA policy in place to guide their development in line the country’s interests or development objectives.

Subsequently, in recent times especially since the passage of Constitution of Kenya 2010 the country has engaged 14 DTAs which, sadly, give away more of Kenya’s taxing rights as compared to those negotiated prior to the new constitution.

This leaves Kenya at risk of haemorrhaging to illicit financial flows with the Kenya Revenue Authority (KRA) fighting to achieve targets with its hands tied behind its back.

Parliament should therefore seek cost benefit analysis and impact assessments for past, present and future DTAs from KRA.

This is in order to understand the amount of tax lost or gained for existing DTAs or those coming into force as a matter of urgent national interest for review and update in conformity with international standards.

The author is the Coordinator of the East African Tax and Governance Network (EATGN); Twitter: @lennwanyama Email: coordinator@eataxgovernance.net

(PHOTO CREDITS: Courtesy NATION)

By

Leonard Wanyama

What you need to know:

• Singapore and Mauritius are among the top 20 most secretive, aggressive and extensive jurisdictions that help multinationals escape paying taxes.
• DTAs may also serve as a channel for tax avoidance.
• Kenya has pursued 48 DTAs since Independence, 14 of them in recent times.

A most perturbing government initiatives is the pursuit of double taxation agreements (DTAs) without an implementation policy. This leaves the country exposed to the risk of having its domestic revenue mobilisation efforts undermined by illicit financial flows, especially when negotiated with known tax havens. Recently, the National Treasury asked for public submissions on a DTA with Singapore and has been actively working to operationalise another with Mauritius that had been held up by a court case filed by Tax Justice Network Africa (TJNA).