Financial experts fear Kenya could be losing Sh15 in revenue for every Sh12 received from Mauritius. (Rs1=Sh2.79).
The Kenyan Star in a report yesterday says this is due to a tax agreement that allows Mauritius domiciled firms to only pay taxes back home.
In total, it says, Kenya could be losing Rupees 250 milliards which is the total revenue loss for the two years.
It says this is enough to clear nearly half of Kenya’s debt obligation for the financial year.
While saying Mauritius is Africa’s leading foreign direct investor in Kenya, bringing billions of Shilling in the country, it says there is a dark side to the story.
“Kenya lost $1.78 billion (Sh178bn) and $1.35 billion (Sh135bn) in tax revenues to Mauritius in the last two years respectively, courtesy of the Double Tax Avoidance Agreement signed in 2012.”
A tax policy expert, Joy Ndubai is quoted by the paper saying tax havens like Mauritius make it easy for tax avoidance, denying countries much needed revenues.
Ndubai is from the International Center for Tax Development.
”Why will a Kenyan register his business here and pay a corporate tax of 30 per cent when he can go register in Mauritius and pay zero? Do you think all these firms trooping to Kenya are Mauritius-owned?” Ndubai says, according to the paper.
Kenya has a higher tax regime compared to Mauritius, which has a near-zero tax regime but Mauritian residents are taxed at a normal corporate rate of 15 per cent.
But they are eligible to claim 80 per cent in foreign tax credit, this therefore reduces that effective rate to a maximum of three per cent.
In the end, they say, Kenya is missing revenue targets since 2013 and the treaty with Mauritius is not helping.
The country is overburdening locals with taxes to cover for its unsustainable public debt and this is raising cost of living.