Kenya risks becoming a tax haven if the Nairobi International Financial Centre (NIFC), signed into law by President Uhuru Kenyatta in July, is implemented in its current form.
Tax Justice Network (TJN), a body that promotes just, accountable and progressive taxation systems in Africa, believes that tax incentive regime, the room for Treasury cabinet secretary to decide which incentives to award and other provisions contained in the Act project the NIFC as a special tax regime.
Jared Maranga, policy-lead tax and investment at TJN, told the Star that the law brings about the issue of secrecy as several provisions relating to the establishment of the NIFC fall short of transparency and accountability.
“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 Maranga.
Maranga added that NIFC is modeled on other International Financial Centres across the world which are synonymous with promoting tax havens and acting as conduits for illicit financial flows in the form of tax avoidance, tax evasion, and money laundering, as well as contributing to profit shifting.
The NIFC, which Kenya has been planning to establish since 2008, is meant to cement Nairobi’s status as the regional financial hub and the Act seeks to provide a legal framework to facilitate and support the development of an efficient and globally competitive financial services sector.
The Act also establishes the Nairobi Financial Centre Authority which will collaborate with other industry regulators to develop and recommend strategies and incentive structures in order to attract foreign firms in the country.
Our efforts to reach the National Treasury to establish measures it has put in place to prevent the centre from turning into a tax haven did not bear fruits as the Permanent Secretary in the ministry could not return our calls nor answer our messages.
However, much remains to be done before the NIFC is up and running, with the government expected to come up with rules on issues such as tax treatment of companies and deals within the finance hub.
The TJN concern about the sanity of an International Financial Centre in the country is coming at the time when the world is grappling with yet another illicit financial scandal involving prominent politicians and organizations.
Dubbed Paradise Papers, documents leaked by a Bermuda-based law firm Appleby and mined by International Consortium of Investigative Journalists reveals how prominent people across the world are taking advantage of tax free financial centres in Isle of Man, Luxembourg, Cayman Islands, Bermuda,Mauritius and Monaco among others to loot from their countries.
Paradise papers scandal is coming barely a year after another document known as Panama Papers was leaked.
The leaked document has linked Sally Kosgei, former minister and head of public service to offshore transactions using Zonrisa Ltd, a Mauritius company previously registered in the Isle of Man as Aisha Ltd.
Even so, the former minister has dismissed the allegation, stating that she bought the flat using personal funds before becoming the head of Kenya's public service head and that she expected to spend time in the United Kingdom due to her children's studies.
During the past four decades, it is estimated that the country lost over US$10.6 billion in accumulated illicit financial flows, a figure that exceeds the country’s stock of debt, which amounts to US$8.4 billion.