Economy

Biden wants KRA to spy on American companies

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US President Joe Biden. PHOTO | SHUTTERSTOCK

The United States is demanding that the Kenya Revenue Authority (KRA) spy on American firms and investors for money laundering and tax evasion as a condition for a trade deal between the two countries.

The Biden administration wants Nairobi to enforce an agreement signed in 2014 that requires Kenya to share information on tax evasion linked to US firms or investors involved in trade with America.

The tax agreement was signed in Washington on August 6, 2014, during the Barack Obama era.

The KRA will be expected to gather and share information such as income declarations, bank records and data on goods shipment and allow its employees to appear as witnesses in the US courts.

Kenya is also expected to seize and forfeit goods associated with tax evasion and money laundering breaches by Americans and investors with dealings in the US.

Sources at the KRA and the Treasury reckon that Kenya has been reluctant to enforce the 2014 agreement for fear of upsetting big US corporations and high-net-worth investors.

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Donald Trump replaced Obama on 20 January 2017 and went slow on pushing for agreements signed by his predecessor.

The Biden administration has been keen to revive some of the pacts that had been reversed by Trump.

The 2014 agreement provides for “the legal framework for the exchange of information and evidence to assist countries in the enforcement of customs laws, including duty evasion, trafficking, proliferation, money laundering, and terrorism-related activities.”

“Upon request, a Customs Administration shall exercise special surveillance of persons known to the requesting contracting party to have committed an offence or suspected of doing so, particularly those moving into and out of its territory” says the agreement.

The large American corporations in Kenya include Cummins, Dupre Investments, General Electrics, Coca-Cola, IBM, Ormat Technologies, Alternate Systems, Mars, Mastercard and Microsoft.

Others are Everstrong Capital, Uber, Netflix, Google, Amazon, Uber, and YouTube.

The US government expects the KRA to alert it on firms that under-declare tax, especially custom duties. It should also inform Washington of firms whose actions could damage America’s public health, economy, security or other vital interests.

Biden is keen to raise more taxes from Americans and US firms. He has toyed with the idea of introducing a minimum tax targeting the wealthy.

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Under an earlier proposal, America's 0.01 percent richest would face a minimum 20 percent tax on income.

The KRA had not responded to the Business Daily’s requests for official comment by the time of going to press.

The Biden administration on Thursday launched a fresh strategic trade and investment partnership with Kenya, replacing an agreement the Trump government had inked with Nairobi.

The US and Kenyan governments will start work within three months to develop a roadmap for engagement in 10 areas, including agriculture, digital trade, action on climate change, and trade facilitation and customs procedures, the US Trade Representative’s Office said.

The launch follows last year’s statement by the Biden administration that it would review the Trump-era bilateral trade negotiations with Kenya in 2020 over a potential free trade agreement (FTA).

Trump and President Uhuru Kenyatta had in February 2020 announced the intention to start formal trade talks, triggering activities that were expected to culminate in a deal within two years and ahead of the August 9 General Election.

Kenya has long sought a full free trade agreement with the US, and negotiations for such a deal to lower bilateral tariffs were launched by the Trump administration with the East African nation in 2020.

But the Biden administration, which has shunned traditional trade deals, did not resume those talks.

Kenya enjoys substantial duty-free access to the US market through the Africa Growth and Opportunity Act (Agoa), a trade preference programme for sub-Saharan African countries, but it expires in September 2025.

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Kenya exported Sh82.2 billion worth of goods to the US in 2021, of which more than 75 percent entered duty-free under Agoa.

The US exported Sh67.3 billion worth of goods to Kenya in 2021, with aircraft, plastics, machinery and wheat among the largest.

The partnership announced by the two countries on Thursday made no mention of reducing tariffs or enhancing market access, in line with other recently launched US trade dialogues with Britain, the European Union and Indo-Pacific nations.

The Kenya dialogue will include efforts to develop micro-, small- and medium-sized enterprises and discussions on enforcement of labour laws and promoting workers' rights -- central components of the Biden administration's other trade initiatives.