An agreement that Kenya entered into with Mauritius a month ago enabling companies operating in the two countries avoid double taxation could be headed to court as a tax lobby questions its legality
Kenya and Mauritius signed a Double Taxation Avoidance (DTA) agreement during President Uhuru Kenyatta’s visit to the country in March. The DTA is, however, being contested with lobbyists noting that the State may have disregarded a court ruling that nullified a tax avoidance agreement signed by the two countries in 2012.
The 2012 agreement was declared unconstitutional by the court a week before the President’s visit to Mauritius. The Tax Justice Network Africa (TJNA) had moved to court to have the 2012 agreement nullified, claiming it was unconstitutional and would undermine Kenya.
“All we know is that the government has negotiated a new treaty but do not know when and the negotiations took place. The ruling for the 2012 agreement happened in March and the President travelled to Mauritius a few days later and the agreement was signed during the visit. Under what circumstances was that treaty signed? That for us is a red flag,” said TJNA Executive Director Alvin Mosioma
The Government could appeal the case and if it wins, it could pose a challenge for State agencies implementing the pact and investors looking to take advantage of the opportunities.
“It raises questions. What happens if the Government wins in the Court of Appeal or in Supreme Court if it decides to appeal? There will be two DTAs running concurrently,” said Mosioma.
He said the signing an agreement before the earlier one is decided upon by the courts is a big policy contradiction. “We will pursue the DTA to the Supreme Court, if there is a need to, and if we win, the court decision will supersede the new DTA,” he said.
Mosioma noted that such agreements could work in the favour of Kenya, but many have been skewed to benefit a few individuals in Government. This, he noted leaves loopholes for businesses to exploit and avoid paying taxes.
He said a DTA was meant to help firms not to be taxed in two jurisdictions where they have operations but companies end up abusing the gaps and loopholes in the treaty.