The government has committed to strengthen the Addis Ababa Action Agenda (AAAA) and seal the loopholes against control illicit financial flows (IFFs) in the country.
The AAAA sets out a strategy to mobilise and ensure effective use of domestic revenue, combat tax evasion and IFFs. It requires progressive tax policy reforms and more efficient tax collection in a transparent manner.
IFFs can result from proceeds in corrupt dealings, money laundering and from commercial tax abuse including evasion and trade mis-pricing.
The net effect is transferring the monies outside the country to where they are outside the scope of local financial regulators. Funds flow offshore, including through deposits or securities, real estate, businesses, and other assets.
In 2017, Global Financial Integrity estimated that the country lost over Sh1.06 trillion ($10.6 billion) in accumulated IFFs since 1970, being the worst case in Africa.
Between 2002 and 2011, Kenya is believed to have lost about Sh151 billion ($1.51 billion) to trade mis-invoicing, with the tax losses estimated to be as high as 8.3 per cent of government revenue.
Trade PS Chris Kiptoo said there are loopholes existing in laws meant to ward off fraudulent individuals and corporations, hurting revenue collection targets.
“If we achieve this, the funds will be redirected in spending targets for essential services set out in government pillars to ensure social justice,” PS Kiptoo said yesterday.
A report on Tax justice and Poverty by Jesuit Hakimani Center has named banks, ICT, unregulated money transfer services, legal loopholes and developments like establishment of Nairobi International Financial Centre being key avenues aiding illicit money movement.
The country depends highly on income taxes and VAT as the main sources of revenue. There are also businesses taxes including excise duties and import and export goods. However, lowering rates of taxes such as corporate income tax has made them less progressive and almost flat in contribution to revenue.
“Self-declarations for CIT leave loose ends which private wealth holders, tend to exploit by declaring less taxable income. Corruption and fraud make Kenya Revenue Authority staff vulnerable to cutting deals instead of enforcing taxes that are due,” the report showed.
AAAA was the outcome of the 2015 Third International Conference By United Nations on Financing for Development held in Ethiopia.
