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Law proposing making Nairobi tax haven for firms stirs up storm

BUSINESS
By Otiato Guguyu | March 21st 2017
Jubilee Parliamentary majority leader Aden Duale addresses the Press at the Party's headquarters to comment on the recent ODM Party leader's Raila Odinga's recent remarks on the IEBC use of technology in 2017poll Nairobi 18/12/16 PHOTO MOSES OMUSULA

A proposed law could make Nairobi a tax haven for rogue firms, according to civil society groups opposed to the creation of an international financial hub in the capital.

The Nairobi International Financial Centre (NIFC) Bill, introduced by Leader of Majority Aden Duale this month, proposes unspecified incentives and autonomy for firms that will take advantage of the proposed financial hub.

Tax Justice Network (TJN) said such centres allow large corporations to pay zero or low taxes and can be used to launder money due to their secretive nature.

“It will undermine the raising of revenues domestically, making Kenya a financial secrecy jurisdiction and is subject to abuse given that neither the regulations nor the incentives have been indicated,” said the policy lead tax and investment at TJN, Jared Maranga, at a press briefing in Nairobi yesterday.

Mr Maranga said oversight of the companies will also be difficult since the proposed law will be centred on the president.

The Bill proposes the creation of a steering council led by the president and his deputy as well as an oversight authority headed by an appointee of the president, Treasury, and International Cabinet secretaries.

If passed, the controversial Bill will also be superior to any other financial law, which the lobby warned would bring unfair treatment and make firms in the financial centres beyond reproach.

“Where there is any conflict or inconsistency between this Act and the provisions of any other Act in matters relating to the purpose of this Act, this Act shall prevail,” Section Three of the Bill reads.

A financial analyst said the Bill intends to replicate other jurisdictions that have tried to institute the concept.

“The concern is that NIFC either needs to be ring-fenced completely from domestic use, as, for instance, in Luxembourg or Mauritius, or it needs to be fully integrated and made available to domestic use, as, for example, in Dubai and London,” said Riverside Capital’s Deepak Dave.

“Tax or indeed regulatory process cannot be imposed the same as domestic if the ring-fence is in place and it may be that was the intention of the Bill, but it has been poorly drafted,” said Mr Dave.

Mr Maranga said Duale’s draft law has been modelled on the Qatar Financial Centre without enough content on disclosures or legislation of how it will be set up or run, “making it a shallow version".

In Qatar’s Finacial Centre, firms pay no withholding taxes, enjoy highly slashed/no corporate tax rates, and pay no tax on capital gains.

 

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