By Leonard Wanyama
While the world commemorated World Social Justice Day on 20 February 2018, Kenya’s government should have taken seriously the arguments made by Winnie Byanyima, Rutger Bregman and Erik Brynjolfsson at the Davos World Economic Forum.
The rich, corporates and high net worth individuals, should be compelled to pay their fair share of taxes to help stem increasing inequality within society.
The case of Kajiado County Government’s threat to subdivide land occupied by Tata Chemicals Limited (previously Magadi Soda) serves as a curious case potentially pointing to an instance of tax avoidance.
Tax avoidance is the organisation of company finances in a way that declared income is minimised for purposes of paying as little tax as possible mostly through exploiting loopholes in a country’s legislation.
Governor Joseph ole Lenku’s fallout with the company therefore stems from claims that Tata owes the county government KES17 billion in accrued land rates on 224,000 acres it has occupied.
Interestingly the rates were determined based on a gentleman’s agreement reached with the previous county government for the company to pay KES 150 per acre down from KES 14,000 as stipulated in the Kajiado County Finance Act 2014.
Other than the gentleman’s agreement, Tata’s argument essentially sounds quite like Ken Goldman, former Yahoo Chief Financial Officer or Michael Dell, Chief Executive of Dell Technologies that taxing the rich stifles job creation and growth.
Both were nevertheless chastised by Madam Byanyima and Professor Brynjolfsson respectively, for not considering the dignity of people or history in taxing the rich.
In Tata’s case they argue that they should qualify for further consideration in terms of exemptions having spent KES276 million on corporate social responsibilities (CSR) in the 2017/2018 financial year.
Loosely put, by paying KES150 per acre Tata would enjoy a 99 percent tax exemption, not to mention the 130 percent ‘electricity allowance’ as a beneficiary of manufacturing incentives following passage of the Finance Act 2018. Even if the company spends 3.5 percent of their revenue given to CSR, the county effectively stands to lose about 90% in land rate revenue.
While Tata’s actions are not illegal, such practices are increasingly being viewed as unfair and discriminatory due to the manipulation involved such as ‘gentlemen’s agreements’ that reduce expected tax bills thereby deliberately limiting revenues paid to national or county governments.
Bearing in mind Tata has indicated the local company is effectively bankrupt and as such is heavily funded by loan support from its parent company in India, their operations could point to evidence of tax planning arrangements.
This may be an interesting operating structure where transfer (mis)pricing queries may emerge from procedures between the local company and the parent company.
Mick Moore, Wilson Pritchard and Odd-Helge Fjeldstad’s point out in their recent book Taxing Africa: Coercion, Reform and Development, how these are the kind of very complex tax arrangements that are preventing the self-sustainability of African governments.
The authors show that in linking international, national and local tax challenges it is clear that “No individual African government can do much about the rules of the international tax system. Collective action is required to change the rules”.
Consequently, by realising that there are significant opportunities for Kenya to collectively work with fellow countries to minimise trans-border tax losses through implementing some of the international tax rules more rigorously, the government should pursue tax justice as part of its public policy and economic diplomacy.
Although this will help strengthen revenue raising activities by curbing tax avoidance, it may also assist government mobilise against lobbyists from transnational companies, especially those in sectors such as tobacco, alcohol, betting and mineral companies that are insistently telling African governments that taxing their companies effectively discourages economic prosperity.
The author is Coordinator of the East Africa Tax and Governance Network (EATGN). Email: email@example.com, Twitter: @lennwanyama