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Income Tax Act has loopholes companies exploit to avoid paying taxes

By Lee Mwiti | December 2nd 2017
Obell becomes the first Kenyan to be appointed to the United Nations Economic and Social Council’s Committee of Experts on International Cooperation in Tax matters.

Kenya’s Income Tax legislation lacks clarity and contains loopholes that make it easy for multi-nationals to evade paying taxes.

This is according to a panel of tax experts taking part in the third Annual Kenya Revenue Authority (KRA) Tax Summit led by former Ghana Finance Minister and current board member of the International Tax and Investment Centre (ITIC) Seth Terkper, which ended yesterday.

Agreeing with the sentiments, KRA Chief Manager in the International Tax Office George Obell said it has become difficult for the taxman to fight companies that evade taxes because the Kenyan Income Tax law requires KRA to collect evidence that show firms had the intention to avoid tax payment, and did not do it inadvertently. This, he said is a difficult thing to do.

“There are so many loopholes that multinationals use in the Income tax legislation to avoid paying taxes. For example, if you have not been in the country physically for 183 days then the law does not recognise you as a Kenyan tax resident,” Mr Obell said.

“Many companies which conduct business in Kenya digitally do easily exploit this law. But we are in the process of restructuring the Income Tax to seal these holes.”

At the same time, Obell said it is time taxpayers especially multi-nationals took tax payment as a moral obligation, and not something KRA has to intervene through legal instruments to force them.

A notion that was strongly dismissed by one of the experts Nikhil Hira, a tax advisor at Deloitte who said that as long as the Government does not account openly for how it spends the revenue collected, then people will never feel obligated to pay taxes.

“It is true our Income Tax Act has many loopholes which make it difficult to draw a line between tax avoidance and tax evasion. But KRA should not tell people to appeal to their conscious to pay taxes. As long as government cannot account for all the revenue it collects, then taxpayers cannot feel guilty for not paying taxes,” Mr Hira said.

Rogue companies

Emily Muyaa, in charge of Sub-Saharan Africa at International Bureau of Fiscal Documentation (IBFD) agreed with Hira saying KRA should work on strengthening its income tax law and treat tax payment as a question of morality.

“KRA should not preach morality in encouraging tax payment. It should work on its legal instruments to ensure rogue companies especially multi-nationals pay taxes,” Ms Muyaa said.

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