Inside Politics

Kenya loses Sh55b to tax havens yearly

Tuesday, November 24th, 2020 00:00 |
Corporate tax. Photo/Courtesy

Steve Umidha @UmidhaSteve

Kenya loses an estimated Sh55.1 billion in corporate tax per year from multinational companies abusing the law to shift profits to United Kingdom, Switzerland and Luxembourg, a new study by an advocacy group reveals.

Tax Justice Network (TJN)  says for the first time, the extent of resources being lost placed Kenya among top African countries most exposed to the vice. The continent losses over $25 billion (Sh2.7 trillion) yearly mostly from corporate tax abuse.

Only Nigeria is ahead of Kenya with an estimated Sh1.1 trillion in corporate tax losses. The West African country leads in the deadly vice aided by crooked leaders.

The report released on Friday also found that tax abuse by multinational companies and avoidance by rich individuals was costing global countries over $427 billion (Sh46.8 trillion) a year in lost revenues, significantly hampering their economic growth.

“The State of Tax Justice 2020 finds that higher income countries lose more direct tax revenue to corporate tax abuse ($202 billion lost each year) than lower income countries ($43 billion lost each year).

The World Bank classifies countries on the basis of gross national income per capita as either low, lower middle, upper middle or high income,” reads the report in part.

Corporate tax

Corporate tax rates in practice in the UK, Switzerland and Luxembourg – well known tax havens range from 10 per cent to 0.8 per cent – markets where Kenyan elites stash their stolen public funds. Mauritius and Dubai are also target markets for the corrupt.

Tax evasion is illegal but companies – especially those with global presence chose to reduce their bills by moving profits through countries or territories with lower taxes, including those with close legal ties to Britain like Kenya.

“We need a global solution to this problem,” said Chenai Mukumba, a policy researcher with TJN, who recommended the formation of a UN –led organisation to be spearheaded by a G20 group of developed and emerging market countries to tighten the rules.

Clifford Omondi, a tax expert said multinationals dodging their tax obligations is escalating despite ongoing efforts by Kenya Revenue Authority (KRA) to seal revenue leakage.

“Unfortunately it is a trend that will continue even though there have been notable measures by the authority to help curb the vice,” said Omondi in a telephone interview. 

No tax jurisdictions 

The State of Tax Justice 2020, an annual report by the Tax Justice Network reveals estimated tax each country loses to international corporate tax abuse.

While there have been estimates in the past about the tax lost globally to tax abuse, it has been difficult to determine how much each country loses individually – until now.

Large corporations ordinarily shift their profits to either low tax or no tax jurisdictions, in order to artificially drive down their tax obligations elsewhere, and pay little tax on the profits they shift into tax havens

TJN also ranked Kenya as one of the top in its February Financial Secrecy Index Financial Secrecy Index in which the country scored 76 out of 100 in terms of secrecy and jumping by 24 per cent. Only Angola and Nigeria beat Kenya in the disgraceful ranking.

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