Controversy: KRA and Treasury clash over tax deals

Chinese workers during construction of the Standard Gauge Railway. Chinese firms take up the bulk of mega infrastructure projects in the country. [File, Standard]

NAIROBI, KENYA: Two State agencies have differed over the decision to offer tax incentives to foreign investors. 

A senior Kenya Revenue Authority (KRA) official said Treasury’s decision to offer foreign investors tax incentives in form of double trade agreements (DTAs) entered into with other governments was ill-advised. 

The commissioner for Strategy, Innovation and Risk Management at KRA, Mohamed Omar, said what the country needed was a proper, equitable, transparent, and stable tax system that inspires confidence among investors and not tax incentives.

“It is true Treasury has been ratifying many of these DTA deals of late, the latest being last week with the Government of China. I don’t think that that’s the right way to go about attracting foreign investment. If we work on our tax regime properly, make it equitable, fair and transparent, we can attract investment without incentives,” said Mr Omar.

He made the remarks on Monday evening when he delivered a public lecture on behalf of KRA Commissioner-General John Njiraini in Nairobi.

Treasury in the past six months has ratified six double taxation agreements with the governments of India, Singapore, South Korea, United Arab Emirates, the Netherlands, and more recently China.

Kenya has 22 such arrangements with, among other countries, Japan, Russia, and the Islamic Republic of Iran.

The agreements mean companies from these jurisdictions pay fewer taxes due to the incentives offered, a situation that continues to make it difficult for KRA to hit its tax collection targets.

Weighing in on the debate, a former president of the African Development Bank, Donald Kaberuka, said he had observed a trend where the Kenya Government was offering too many tax incentives to foreign investors, a situation he said was detrimental to the overall revenue collection in a country.

“Research has shown that offering tax incentives is not the way to go to attract foreign wealth,” said Dr Kaberuka.

The Tax Justice Network estimates Kenya loses Sh103 billion ($1 billion) annually through tax incentives to foreign firms.