Status of the Kenya – Mauritius DTAA

In Summary

• The Kenya – Mauritius DTAA, concluded by the Kenyan and Mauritius governments on 11 May 2012, sought to eliminate the double taxation of income that arises in one jurisdiction and is paid out to residents in another jurisdiction.

• Kenya – Mauritius DTAA sought to enable the exchange of taxation information between the two jurisdictions.

A view of the high court.
A view of the high court.
Image: FILE

The High Court of Kenya, Constitutional, Judicial Review and Human Rights Division, sitting in Nairobi, on 15 March 2019 delivered judgement declaring that Legal Notice No. 59 of 2014, purposed at gazetting the Kenya – Mauritius Double Tax Avoidance Agreement (“DTA”), was not properly laid out before Parliament in accordance with Section 11(4) of the Statutory Instruments Act 2013 and is therefore null and void.

The Kenya – Mauritius DTAA, concluded by the Kenyan and Mauritius governments on 11 May 2012, sought to eliminate the double taxation of income that arises in one jurisdiction and is paid out to residents in another jurisdiction. Additionally the Kenya – Mauritius DTAA sought to enable the exchange of taxation information between the two jurisdictions.

The status of the Kenya – Mauritius DTAA, however, was called in question following a court case lodged by the Tax Justice Network – Africa which prayed for orders that declared the Kenya – Mauritius DTAA unconstitutional. Additionally, the Tax Justice Network – Africa prayed that Legal Notice No. 59 of 2014 be declared null and void on the basis that the underlying DTAA was not drafted, negotiated and ratified in accordance with the principles and values enshrined in the Constitution of Kenya 2010.

The High Court of Kenya, in its judgement, noted that the Kenya – Mauritius DTAA was drafted, negotiated and ratified in accordance the with Constitution of Kenya 2010 taking into consideration constitutional requirements, including public participation, integrity, transparency and accountability. However, a caveat followed wherein the Court highlighted that while the DTAA was indeed constitutional, Legal Notice No. 59 of 2014, which effectively brought the DTAA into force, was null and void as it was not properly tables before Parliament in accordance with the Statutory Instruments Act 2013. Consequently, by virtue of the invalidation of the Legal Notice No. 59 of 2014, the Kenya – Mauritius DTAA is currently not operational up to the point that the same is re-gazetted in the National Gazette by the Cabinet Secretary for National Treasury in accordance with Section 41 of the Income Tax Act 2014, having been tabled and approved by Parliament as required by the Statutory Instruments Act 2013.

The above court case places into sharp focus the delicate balance that governments have to make in ratifying DTAA’s that grant beneficial tax rates to investors from a foreign jurisdiction on a reciprocal basis. It is to be noted that DTAA’s are concluded and ratified with the purpose of enhancing Kenya’s image as an investment destination, as well as to strengthen trade relations with her international partners. In the interest of doing so, however, beneficial tax rates are granted to residents from the corresponding jurisdiction. These reduced tax rates as granted under a DTAA result in reduced revenue collections in the short term. However, this trade-off is expected to pay itself in the long term due to increased investor activity in the Country.

Karen Kandie – MD, IDB Capital