Kenya loses more than Sh7.6 billion annually to illicit financial flows, according to a new report. The revelation casts a dark shadow on the country’s fiscal policies.
Data from a new study released Monday by the international financial watchdog, Global Financial Integrity (GFI) shows that Kenya lost a total of Sh76 billion between 2003 and 2013 due to tax evasion.
The value of taxpayers money that has been lost through dodgy accounting practices over the last 10 years is equal to the money that was allocated to the Ministry of Defence in the 2014/2015 financial year.
Largest rate
According to GFI President Raymond Baker, sub-Saharan Africa continues to bear the brunt of illicit financial flows accounting for the largest rate of tax evasion to gross domestic product (GDP) ratio in the world.
“Illicit financial flows are the most damaging economic problem plaguing the world’s developing and emerging economies,” he said.
“These outflows - already greater than the combined sum of all foreign direct inflows and official development assistance flowing into these countries are sapping roughly a trillion dollars per year from the world’s poor and middle-income economies.” Mr Baker noted that the rate of outflows from developing countries was growing at an alarming rate of 9.4 per cent per year — twice as fast as global GDP putting in danger the prospect of sustainable global development.
In Kenya, there have been cases of firms operating in the country reporting losses for several years on end whilst hiding their profits in administrative fees and asset transfers.
Local companies have also been said to have joined the bandwagon using loopholes in the financial reporting laws and corrupt tax agents to circumvent the taxman.
This denies Kenyans billions of shillings worth of services and developmental infrastructure despite the fact that the Kenya Revenue Authority perennially falls short of its target.
The massive gap in the revenue basket has been blamed on the existence of tax holidays and incentives which still remain in place despite calls from both within and outside government that such tax laws need to be scrapped.
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