National Treasury wants processes of ratifying double taxation agreements (DTAs) between Kenya and other countries to involve public participation before negotiations are concluded.

This will mark a departure from the previous process where the government entered DTAs first then subjected it to public participation through parliament, something that created confusion for both parties as taxpayers might object or demand revision of certain clauses entrenched in the deal.

An objection to certain elements of DTAs after public input always posed the risk of requiring the government to reopen an already concluded agreement even when other parties have ratified the deal. Kenya cannot unilaterally make any change to the signed DTA after negotiations, some of which take two or more rounds. 

Ratification process

“In view of the foregoing, the purpose of this letter is to submit the proposed DTA ratification process for consideration by the National Assembly. The National Treasury remains ready to provide additional information or make a presentation to the Parliamentary Committee in this regard,” National Treasury Cabinet Secretary Njuguna Ndung’u (pictured) said in a letter to the clerk of the National Assembly, Samuel Njoroge.  The letter was copied to the Antony General, Ministry of Foreign Affairs, and Kenya Revenue Authority (KRA) acting Commissioner General Rispah Simiyu. DTAs, considered key to attracting cross-border investment flows, are ways of harmonising taxes to eliminate chances of double taxation on firms in their country of origin and country of investment, meaning they can be taxed once for the same income generated.

Kenya currently has several DTAs that are in force with countries like Denmark, France, Germany, the United Kingdom (UK), United Arabs Emirates (UAE), India, and Iran among others.

Where there are no DTAs, generated investment income sourced in one country is often taxed by the country of residence and the home country. Kenya’s agreement with Mauritius is still incomplete after the DTA was renegotiated in 2020. DTAs are negotiated per the standards of the United Nations (UN) and the Organisation for Economic Cooperation and Development (OECD), both of which Kenya is a signatory.

The push to review the DTA process comes at a time when Kenya is expected to seal numerous trade deals across this year to attract investors, most of whom will be keenly watching the country’s new tax policies in the upcoming Finance Bill 2023.

The East African Community (EAC) member States are for instance, eyeing the end of this year as the deadline to seal its DTAs to enable the regional flow of goods.  – Herald Aloo