EAC double tax removal opens doors to investors

Kenyan firms with operations across the region will only be taxed once on their annual incomes in a raft of reforms announced last week to lay ground for free trade under the East Africa Community common market that comes into force next month.

The move is expected to significantly lower the tax burden and encourage cross-border movement of capital, helping companies expanding into the region to grow and create jobs.

Finance minister Uhuru Kenyatta said the Government had agreed on the double taxation policy and how to implement it with its partners in the East African community.

“A double tax policy is good but we can’t cheer until the Government ratifies and starts implementing it,” said Mr Vimal Shah, the managing director of Bidco Oil Refineries.

While the treaty would have no impact on the cost of doing business, he said, it would act as a magnet for investors from countries with which Kenya has signed the agreements .

A double taxation treaty — such as the ones Kenya has negotiated with Mauritius, Iran and Kuwait — means that an income which has already attracted any form of taxation in the signatory country cannot be subjected to another levy by any of the countries involved.

This, for instance, would mean that companies such as Akamba Bus, KCB or Bidco, which are incorporated in Kenya but have operations across the region, will merely produce letters of credit issued by revenue authorities in countries where they have branches to prevent Kenya Revenue

Indian firms have invested trillions of dollars in Mauritius just because of the existing double taxation treaty which assures them that net incomes made from the African nation will attract no more taxes once repatriated back home.

“Kenya is already a business hub and the notion that investments made in the country will not attract tax back home will make it an investment destination of choice,” said Mr Shah.

Mr Kenyatta said priority would be put on signing more treaties in the coming fiscal year.

“In the fullness of time, these will shield our investors from any double taxation and enable exchange of valuable tax information with our treaty partners,” he said in this year’s budget speech read on Thursday.

In a pre-budget survey carried out by Deloitte and Touché, the tax and audit firm, the business community called for the signing of a double tax treaty by EAC partners to lower their cost of doing business.

“Such reforms will enhance the regional competitiveness and ensure ease in the flow of business”, said Mr John Kiarie a partner at Deloitte and Touché.

Currently, businesses with operations across the region pay similar taxes in all the countries where they do business.

Experts say a double tax treaty will be an incentive to firms to expand their operations through the region, creating numerous jobs in the process.