Double taxation pinches East African businesses with regional reach

By Rajab Ramah in Nairobi

June 18, 2013

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Paul Ouma imports and sells second-hand Japanese cars and spare parts in Kenya, Uganda and Tanzania.

  • People walk past a sign in Nairobi advertising Airtel, a telecommunications firm which the Indian giant Bharti Airtel acquired in 2010. India is among eight countries that have signed double taxation treaties with Kenya. [Tony Karumba/AFP]

    People walk past a sign in Nairobi advertising Airtel, a telecommunications firm which the Indian giant Bharti Airtel acquired in 2010. India is among eight countries that have signed double taxation treaties with Kenya. [Tony Karumba/AFP]

The 37-year-old Kenyan started his business ten years ago and expanded to the two other East African Community (EAC) member-states within the first five years of operation. But now he may close his branches in Tanzania and Uganda because of "unfriendly" taxation rules.

"Even though we are paying income taxes, excise duty and value added tax in Kenya, we are still forced to pay the same in Tanzania and Uganda, despite the fact that there is a non-double taxation treaty among EAC members that requires companies to be taxed only once," he told Sabahi.

"This multiple claim on my income by revenue authorities in Uganda, Tanzania and Kenya has eroded my business profitability and is no longer sustainable. If nothing is done very fast to stop this double taxation, then I will wind them down and concentrate on doing business in Kenya," Ouma said.

Cases like Ouma's have pushed the East African Business Council (EABC) to get involved. The interest group has started a campaign in Tanzania, Uganda, Burundi and Kenya to lobby for implementation of the EAC agreement on Double Taxation Avoidance (DTA) within 12 months.

This deal, signed in September 2010, was supposed to take effect in 2011, but stalled with only Rwanda ratifying the agreement.

The EABC is also reaching out to EAC finance ministers and lawmakers to discuss ways to align tax laws in member-states with the DTA protocol.

The EAC's inaction has hurt the regional economy, according to EABC Chairman Vimal Shah. Double taxation places financial burdens on firms with a cross-border presence and hinders the regional movement of capital, he said.

The DTA treaty would help businesses improve their cash flow, create more jobs and enable them to re-invest in their enterprises, he said.

"This is a matter that has been pending for a long time," Shah told Sabahi. "It needs to be addressed once and for all because it is becoming increasingly impossible for businesses to sustain operations across the region."

Bloc needs to commit

EAC countries have been able to implement similar tax agreements with non-EAC countries without delay, said Luke Anami, a business reporter with Kenya's The Standard.

But members of the bloc are moving too slowly to ratify the DTA treaty, he said. "I think it is only sheer selfishness and a lack of clear commitment to the integration process that makes them too reluctant to implement it with their neighbours," Anami told Sabahi.

Kenya shares non-double taxation treaties with India, Denmark, Germany, the United Kingdom, Sweden, Zambia, Norway and Canada. Rwanda has agreements with South Africa, Belgium and Mauritius, while Uganda has such ties with the United Kingdom, Zambia, Denmark, Norway, South Africa, India, Italy, the Netherlands, Mauritius and Belgium. Tanzania has signed tax agreements with South Africa, Canada, Denmark, Finland, India, Italy, Norway, Sweden and Zambia. Burundi has no such tax agreements.

"Some countries see this treaty as one that will favour foreign firms rather than local ones," Anami said. "But that is a wrong notion because such a treaty reduces the tax burden, hence attracts investors, making the region more competitive and attractive not only for [investors from the EAC bloc] but also for foreign capital investment."

He called on business owners to launch public awareness campaigns to press their countries to support the treaty.

The Kenyan government plans to eliminate barriers that hinder trade with its neighbours, National Treasury Secretary Henry Rotich told Sabahi.

"Laws on tax regimes are among the laws we have lined up to change," he said. "Once changed, we will have addressed the concerns of businesses people in the region, as well as enhanced regional integration."

However, Rotich did not offer details on how and when the government planned to change the tax laws.

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