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Poor over-taxed but rich stash away Sh100 billion

By Editorial | November 4th 2013

Kenya: The National Treasury should rein in large corporations and high net worth individuals who escaped paying taxes estimated at about Sh100 billion over the past three years.

Surely it cannot be right for the government to continue levying punitive taxes on its poorer citizens while retaining obvious loopholes in its tax code through which the rich and their companies either escape paying taxes altogether or pay token amounts.

The loopholes include tax incentives ostensibly meant to encourage increased foreign direct investment (FDI) into the country. Yet, studies carried out by Action Aid and Tax Justice Network Africa reveal that other African countries attract more FDI than Kenya despite the fact that they do not offer any special incentives.

Worse, research in the area reveals that tax exemption regimes make it easier for some multinational companies to manipulate the system to enjoy the tax holidays for decades after the time originally agreed has elapsed. Some of these companies have even been known to move to other countries to begin the process all over again.

A consensus is growing that some of these tax-dodging companies have now aggressively adopted tax-planning — an accounting term that means strategically reducing one’s tax expenses — measures all aimed at denying the country its fair share of revenues.

This is borne out by the increasing number of cases of firms reporting losses in the country year-in, year-out while hiding their profits in administrative fees and asset transfers.

Sadly, some local companies seem to have learnt tax-dodging strategies from the best for there are companies founded in Kenya, operating in Kenya and selling their products in Kenya with shell companies registered in tax havens where they shift their profits under one guise or another, leaving little or nothing for the local tax collector.

Whereas the Kenya Revenue Authority (KRA) is to be commended for its efforts, the bureaucratic mess in which it is forced to operate means that unscrupulous companies and individuals will always be a step ahead.

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