INTERNATIONAL CIVIL SOCIETY ORGANIZATIONS OPPOSE KENYA PLAN TO SIGN TREATIES WITH SINGAPORE AND COMO

By Clive Ayuko and John Otieno

Nairobi, Kenya 19th August 2020

Governments like men are selfish and often enter into agreements with other governments for various selfish reasons, most of which is in line with the improvement of its social, economic and political interests. Treaties; however, unlike agreements made between men, those made between governments (who are composed of men) are not straight forward processes, often require the involvement of a number of players (Stakeholders) and may take a number of years before such ratification process is concluded.

This is necessitated by the fact that decisions on treaties which once ratified become part of Kenyan law, affect all Kenyans at large hence cannot be left in the hands of a single individual or entity thereby requiring the involvement of the public in the ratification process. Article 2 (5) of the constitution of Kenya 2010, Section 14 (4) (e) of the Treaty Making and Ratification Act, 2012 (Rev) provides the legal framework for ratification of treaties by the Government of the Republic of Kenya. These outline some of the requirement which include: a vigorous public participation process on the subject matter, a parliamentary debate, calling for and receiving of public submission on the same by appropriate Cabinet Secretary, a ratification process by the relevant Cabinet Secretary (Minister/Ministry incharge of the function) and lastly the National Assembly who has the final say in this matter. In a gazette notice dated 13 July 2020 the Government of Kenya through the Cabinet Secretary for National Treasury and Planning Amb. Ukur Yatan made known its intention to get into agreements with the Government of the Republic of Singapore and the Government of Barbados for the Avoidance of Double Taxation with respect to taxes on income. Keeping in line with the modus operandi characteristic of treaty ratification in Kenya which argues for comprehensive public participation among the major stakeholders to include the general public called for REQUEST FOR COMMENTS ON THE AGEEEMENTS ON AVOIDANCE OF DOUBLE TAXATION BETWEEN THE GOVERNMENT OF THE REPUBLIC OF KENYA AND GOVERNMENTS OF THE REPUBLIC OF SINGAPORE AND BARBADOS RESPECTIVELY.

The Tax Justice Network Africa and the East African Tax Governance Network, both international Civil Society organizations CSO involved in public sensitization took issue with the new policy directive as outlined in their press release document dated 19th August 2020:

Nairobi, 19 August 2020 – Tax Justice Network Africa (TJNA) and the East African Tax and Governance Network (EATGN) hereby caution the Government of Kenya (GOK) in its pursuit of new double taxation agreements (DTAs) with the Government of Barbados and Government of the Republic of Singapore. Singapore is globally ranked as the 8th most aggressive tax haven allowing for extensive avoidance and evasion of taxes from other jurisdictions around the world. Therefore, having DTAs with both countries doubly places Kenya at risk of eroded tax revenues in a time of increased debt strain. In response to a notice issued by the Ministry of Finance, National Treasury and Planning, on 13 July 2020 requesting for public submissions on the respective treaties, TJNA and EATGN welcomed the change in policy behaviour and submitted comments for the two DTAs on 17 August 2020. This represents a fundamental shift on the inclusion of stakeholders in treaty making and ratification processes in Kenya. However, we urge that this process moves beyond invitations for comments to more constructive consultations, analysis and decision making that involves other participants including the Kenyan parliament. Having previously petitioned the High Court -and won- against the National Treasury on the issue of public participation as related to the DTA with Mauritius, TJNA recognises this significant step taken by government to begin opening up the process of policy making as enshrined in the Kenya Constitution. The Executive Director Mr Alvin Mosioma had previously stated “TJNA intends to ensure that in future similar tax negotiations are not in contravention with the laid down laws and procedures”. Nevertheless, considering the increasing significance of tax havens in the loss of domestic revenue, the Kenyan Ministry of Finance should note the following four points during this process. First, there’s a need to publicly explain why there’s an urgency to sign DTAs with known tax haven jurisdictions such as Mauritius or Singapore instead of prioritising the implementation

one that has already been developed by the East African Community (EAC) members, who are Kenya’s largest trading partners. Secondly, that further to submission of comments, the Barbados and Singapore tax treaties will require parliamentary scrutiny and public debate under the Treaty Making and Ratification Act of 2012 (TMRA 2012). This is in line with the fulfilment of the monist principle in the Constitution; requiring approval by the legislature on treaties that become part of domestic law, especially if they affect public finance and the burden of taxation, as laid down in articles 1, 2.6, 114(2), 201 and 210(1) of the Constitution Thirdly, there is a need to evaluate both tax treaties in relation to how they are likely to negatively affect Kenyan tax law. A cost benefit evaluation on the desirability of the Barbados and Singapore tax treaties as specified in the TMRA is necessary. This is especially because these treaties entail a restriction on tax sovereignty and have major revenue implications; they grant tax benefits and exemptions to foreign investors not available to Kenyan citizens or companies, resulting in reduction of government revenue and directly affecting the public finances and the sharing of the burden of taxation (Constitution Article 201). Lastly, a public impact analysis on the risk of revenue loss will need to be shared for and national debate. The revenue implications of the various benefits, and possible losses from exemptions in tax treaties must be evaluated against the conceivable gains, or otherwise, of attracting investment from abroad.

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