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The East African : Apr 15th 2017
APRIL 15-21,2017 BLOW TO CROSS-BORDER INVESTMENTS Double taxation pact put on ice as businesses cry foul EAC states continue to tax income whe≥e it is gene≥ated and in the home count≥y By JAMES ANYANZWA The EastAfrican implement an agreement on double taxation avoidance (DTA), over fears that the deal could provide a loophole for tax evasion by companies. The states are now focusing on E harmonisation of legislation on domestic taxes such as income tax, excise duty and value added tax to make the bloc a single, friendly investment destination. This means that companies involved in cross-border operations may continue losing millions of dollars by paying taxes on the same income in the home countries and where they are operating. The EastAfrican has learnt that despite calls by manufacturers, businesses and tax experts for the ratification of the DTA agreement, fears over potential loss of tax revenues by some member states have slowed down the process. Developed cold feet The EAC member states hold diverse views on the implications of the DTA agreement. Though Kenya has signed the agreement, it is said to have developed cold feet on its implementation, arguing that it would lead to tax evasion and loss of revenues. “The purpose of DTA is to attract foreign direct investment. It should not be signed just with any country, because companies will evade taxes,” said Geoffrey Mwau, director-general in charge of Budget, Fiscal and Economic Affairs. “You have to sign it ast African Community member states are wavering on a plan to with countries that have the potential to bring FDI, because if you don’t, the agreement becomes a conduit for tax evasion.” Currently, EAC governments tax income earned by investors both in the country where it is generated and in the country where the taxpayer originates. Dr Mwau said DTA is not a priority for the region. “We have to harmonise our tax and regulatory environment,” he said. So far, Kenya, Rwanda and Uganda have ratified the agreement. It requires all the EAC member states to sign as a bloc for it to take effect. The DTA was signed on November 30, 2010, but there has been little progress in terms of fast-tracking internal processes by member countries, including securing Cabinet or parliamentary approvals. The agreement should be implemented within a year after ratification. None of the EAC countries have BACKGROUND The EAC tax harmonisation programme started in 1997, with the development of the Agreement on Avoidance of Double Taxation under the permanent Tripartite Commission. The EAC has engaged the International Monetary Fund to advise on how to harmonise its taxation policies as part of the ongoing regional integration programme. The harmonisation is expected to eliminate harmful tax competition and promote the EAC as a friendly investment destination. Companies involved in cross-border operations may continue losing millions of dollars by paying taxes in their home countries and where they operate. double taxation agreements with each other. Dr Mwau said the region is working on a harmonised DTA framework that will inform discussions on all DTAs signed between the EAC and non-EAC countries. “We are trying to harmonise a framework of DTA for the EAC so that the DTA a country signs with another outside the Community must be within the EAC guidelines,” he said. This comes as private businesses in the region push for the removal of the double taxation regime to promote trade and investment across borders. The East African Business Council (EABC), the umbrella body of private businesses in the region, cited double taxation as the largest stumbling block to trade and the full implementation of the Common Market Protocol. Gains of integration Tax experts say the delay in implementation of the DTA will discourage cross-border investments and negatively affect economic growth and undermine the gains of regional integration. “We are hopeful that double and multiplicity of taxes will be rescinded,” said Jane Ngige, chief executive of the Kenya Flower Council. The EAC has engaged the International Monetary Fund to advise on how to harmonise its taxation policies as part of the ongoing regional integration programme. Why millions of Tanzanians a≥e still living in pove≥ty By JOSEPH MWAMUNYANGE Special Correspondent IN SPITE of an impressive record of reducing poverty from 60 per cent to 47 per cent over the past decade — based on the $1.90 a day global poverty line — there are today 12 million Tanzanians living on less than $0.5 a day. The World Bank’s 9th Tanzania Economic Update says that overall, Tanzania’s economic position remains solid, but it has to work towards the government target of 10 per cent by 2020/21, as it seeks to industrialise. According to Bella Bird, World Bank coun- try director for Tanzania, Burundi, Malawi and Somalia, 800,000 young Tanzanians enter the job market annually, with only limited oppor- tunities. “Higher levels of growth are badly needed to create a greater number of productive jobs and to significantly reduce poverty,” Ms Bird said. The 2015 Employment and Earning Survey found out that over 2.3 million Tanzanians were employed in the formal sector on the Mainland. Out of those, 1,568,165 were in the private sector. 800,000 The number of young Tanzanians who are entering the job market annually, with only limited opportunities for employment Ms Bird said the government’s focus on in- dustrialisation must create jobs and reduce poverty. Potential of private sector “Public investment projects need to be priori- tised for growth and poverty reduction impact, and they need to be fully funded,” she added. Dr Hawa Sinare, a senior consultant at Rex Consulting, noted that the country must unlock the potential of the private sector to speed up economic development leading to job creation. “Credit is very expensive and it is killing us. Besides being a lawyer I also farm, and it is very difficult to get funding in this area. What we are seeing are more and more taxes on revenue,” she said. The EastAfrican BUSINESS ROUND UP Kenya to build jetty to move oil across L. Victoria Kenya has announced that it will start building a $150 million jetty in Kisumu town next month to facilitate the delivery of refined petroleum products across Lake Victoria. Kenya Pipeline Company said the jetty is expected to reduce the operating costs for oil marketing companies. The corporation’s managing director, Joe Sang, said the project is expected to boost the Kisumu depot’s throughput by 1 billion litres annually. Officials of petroleum marketing firms, while praising the project’s potential for reducing costs, have however cautioned that more was needed to prevent water pollution. Uganda has also commissioned a study on moving bulk petroleum products over the lake. Brewer to tap potential of Africa with exports Anheuser-Busch InBev will export African beer brands to its markets around the world as the Budweiser maker seeks to maximise the potential of a continent that was key to its decision to buy rival SABMiller for $103 billion. “There are so many very unique African brands and I think it is time to sell African beers to the greater market,” said Ricardo Tadeu, head of AB InBev’s African operations. “There is huge potential for these brands to be exported.” The world’s biggest brewer plans to sell packs of eight African beer brands outside the continent, including Castle, the dominant brand in South Africa, Kilimanjaro of Tanzania and Nigeria’s Hero. 35 Kabila adviser ‘received payments from Gulf firms’ In June 2015, the Belgian company Semlex signed a deal to supply biometric passports to the Democratic Republic of Congo. A few weeks later two companies based in the United Arab Emirates made payments totalling $700,000 to private bank accounts held in the name of Emmanuel Adrupiako, a Kabila adviser who helped handle the passport deal, according to bank documents and e-mails reviewed by Reuters. The two UAE-based companies have connections to Semlex, but it is not clear whether the payments were related to the passport deal. Adrupiako did not respond to requests for comment.
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