President Uhuru Kenyatta’s visit to Mauritius may have stoked an unintended legal crisis back home after ignoring a court ruling invalidating an earlier agreement on double taxation.
Among the six treaties signed between Kenya and the Indian Ocean island nation during his just-concluded four-day State visit, was the Double Taxation Avoidance Agreement (DTAA) which the High Court ruled as unconstitutional last month.
Re-signing the treaty, which it was not immediately clear whether it had been amended in any way since it was first signed in 2012, would mean that the President expressly disobeyed the court’s ruling. A statement from Port Louis, the Mauritius capital, confirmed the signing of the treaty meant to cushion investors from double taxation on income earned by a resident of either nation.
“During the bilateral talks, President Kenyatta and Prime Minister Pravind witnessed the signing of several agreements, including the Double Taxation Avoidance Agreement (DTAA), an Investment Promotion and Protection Agreement (IPPA) and an MoU on Cooperation for the Development of Special Economic Zones (SEZs) and Export Processing Zone in Kenya,” said State House in a statement.
The High Court had based its ruling on the fact that there was no public participation in the drafting of the controversial agreement while the National Assembly had not ratified it.
The 2012 agreement provided companies with the option of paying taxes in one legal jurisdiction in a bid to make Kenya more attractive to external investors.
It was, however, contested by tax lobby Tax Justice Network Africa (TJNA) which sued the Treasury and the Kenya Revenue Authority (KRA) in 2014, arguing the deal signed in Mauritius’ Port Luis was not ratified by Parliament and was thus unconstitutional.
TJNA further argued that the agreement would erode Kenya’s revenue base by giving companies a legal leeway to shift their profits to Mauritius to avoid paying taxes in Kenya.
The latest development now raises concern among investors as to whether the agreement can be enforceable in Kenya where the Judiciary enjoys significant independence compared to other jurisdictions.
Justice Weldon Korir in his ruling last month had indicated that the agreement had ceased to have an effect and effectively became “void in accordance with the Kenyan law”.
Besides the procedural technicality informing the ruling, the applicants had challenged the fairness of the DTAA which they claimed encouraged tax avoidance.
The lobby said while such agreements may be well-intended, they are widely abused by investors driven by the desire to avoid paying taxes in either country.
“Evidence has shown that contrary to their objectives, these DTAAs have led to double non-taxation and resulted in massive revenue leakage for African countries,’’ said TJNA Executive Director Alvin Mosioma.
President Kenyatta concluded his four-day official visit to Mauritius on Friday.
The visit was intended to foster better relations, especially surrounding investment and trade.
Besides the DTAA, the President also signed the Investment Promotion and Protection Agreement, MoUs on tourism, higher education and scientific research as well as in arts and culture.
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