Mauritius Leaks: Kenya should be wary of its interactions with island nation
By Leonard Wanyama
One fascinating aspect of Kenya’s fight against corruption has been how international dimensions relate to current government policies across various decision-making spectrum.
This not only raises legal, and financial questions but also foreign policy concerns considering the country’s pursuit of economic diplomacy as an avenue to achieve development.
Economic diplomacy pursues commercial, financial and developmental interests within the realm of international politics as an avenue to state prosperity by utilising external relations.
With this in mind and while seeking to be competitive in relation to other African states, the Government of Kenya signed a second Double Taxation Avoidance Agreement (DTAA) with Mauritius in 2019 to promote foreign direct investment (FDI) flows into the East African nation.
However, due to; problematic definitions; inconsistencies with other international commitments; limitation of taxation rights; exclusion of key sectors and procedural, if not constitutional, illegalities of not following the Treaty Making and Ratification Act of 2012, in the previous agreement of 2012, the current unpublished status of the DTAA singles out Mauritius as a key conduit of resources out of the country.
For instance, last year on June 13, 2018, the Director of Public Prosecutions (DPP) Noordin Haji recommended punitive measures against banks that were used as conduits for corruption by disclosing how part of the money in the Ruaraka land saga – now back in the limelight- is stashed in Mauritius, with up to $2 million being withdrawn in three days and whisked away to the unknown.
Yet, despite this very clear linkage showing illicit financial flows via corruption the government went ahead in April of this year to sign a new DTAA with Mauritius replacing the previous 2012 treaty that was invalidated by the Kenyan High Court in March 2019 as a result of a legal challenge brought by Tax Justice Network Africa (TJNA).
Ultimately, Kenya’s increasing demands and pressures have forced the government to shift the burden of taxation to ordinary citizens while opening doors for elite and unscrupulous multinational corporations to evade or avoid taxes through DTAAs that are facilitated by secretive tax havens of conduit states such as Mauritius.
New revelations by International Consortium of Investigative Journalists (ICIJ) dubbed The Mauritius Leaks further highlight the risk posed towards Kenyan domestic revenue mobilisation initiatives that are now in jeopardy of aggressive ‘conduit state’ policy facilitating rich and powerful entities from avoiding to paying taxes, whether legally or illegally.
Treaties such as the DTAA, whose details remain unknown due to the secrecy of its formulation, only serve to expose Kenya to the negative effects of Mauritius ‘capture economy’.A capture economy herein being the facilitative legal system of a conduit state that threatens the development agenda of African countries by enabling massive tax avoidance and evasion in jurisdictions other than its own.
By promoting its status as a tax haven or offshore financial centre, the Mauritius conduit state and its capture economy systemically enhances corrosion of domestic revenue mobilisation systems through significant endorsement of private interests that jeopardise public finance management in other countries ultimately affecting their obligations towards ensuring service delivery for their citizens.
In the case of Mauritius this is exemplified by its aggressive onslaught against fellow African states; considering it has positioned itself as an unscrupulous gateway for corporations dodging their tax responsibilities at the expense of other less-developed countries through its legion of 46 tax treaties.
The 2019 Corporate Tax Haven Index (CTHI) not only describes Mauritius as a leading corporate tax haven and one of the most financially secretive jurisdictions in the world but also one of the most aggressive corporate tax havens towards African countries.
Kenya should therefore be wary of its interactions with Mauritius lest its facilitation of illicit financial flows harms future development activities.
Leonard Wanyama is the Coordinator of the East Africa Tax and Governance Network (EATGN)