By Macharia Kamau
Kenya should sign more double taxation treaties with other countries to attract more foreign direct investment and encourage local companies to expand into other global markets, a tax audit firm has said.
Ernst & Young says the absence of double taxation treaties between Kenya and its key trade partners is eating into profit margins of many companies expanding into the region and also played part in repelling multinational companies from setting up base in Kenya.
"The power of double taxation treaties is to get people to do business with you as a country. It reduces the cost of doing business and in many instances, benefits are passed on to consumers," said Mr Charles Mackenzie, a tax business development director at Ernst & Young.
Currently, local companies have to bear the burden of double taxation when venturing outside the country, as Kenya does not have taxation treaties with other nations in the region.
Mr Gitahi Gachahi, Ernst & Young regional tax partner, said the global financial crisis had seen tax authorities fail to achieve targets and as a way of coping, they have tried to increase taxation bases.
This has in turn forced companies to increase their revenue bases to avoid ‘surprises where tax is concerned’.
"Globally, companies have had to widen their reach due to dwindling income as a result of the global financial crisis," he said.
Tax agreements
"Local companies, however, continue being subjected to taxation in almost all countries."
Double taxation treaties can, in certain circumstances, mitigate the tax charge in another country as they allow either taxation in one of the countries only or the tax paid in one country to become a rebate in another.
Kenya has only signed such agreements with eight other countries, most of them European and none of them in East Africa.
Other than Zambia, Kenya does not have such treaties with African countries, despite some being heavy trading partners.
"There have been attempts to harmonise tax regimes within the EAC, but it is notable the country does not have arrangements that ease the tax burden for companies operating in Kenya and another country within the community," said Gachahi.
