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Wealthy Kenyans hiding Sh457bn in offshore accounts – report
While this is not a crime, the country has lost almost Sh7 billion in taxes due to high secrecy involved when transferring those funds
Wealthy Kenyans are hiding $4.2 billion (Sh457 billion) in offshore accounts, denying the country $63.4 million (Sh6.9 billion) in tax revenue, according to a global report.
The amount is enough to fund the annual budget for counties of Sh386.6 billion and double the number of health workers to help tackle the Covid-19 pandemic that has claimed over 1,000 lives since March.
According to the State of Tax Justice 2020 report released by Tax Justice Network and Global Alliance for Tax Justice, the amount stashed in low tax territories equals 4.8 per cent of the country’s Gross Domestic Product (GDP).
The survey mirrors a report by the World Bank in February which revealed that political elites had more than Sh327.89 billion in offshore bank accounts over a two-decade period when the country received billions in donor aid.
The study titled ‘Elite Capture of Foreign Aid: Evidence from Offshore Bank Accounts’ compared data on aid disbursements from the World Bank with foreign deposits from the Bank for International Settlements (BIS), focusing on 22 aid-dependent countries.
Jordan topped the ranking among the targeted countries with more than Sh350 billion stashed in offshore bank accounts followed by Kenya which had Sh136.2 billion in less regulated territories and Sh190.35 billion in regulated bank accounts.
While saving wealth in offshore accounts is not a crime, the report points to the country’s high secrecy index that provides leeway for illicit financial flows that has seen Kenya Revenue Authority (KRA) lose close to Sh7 billion in taxes.
The report shows that Kenya’s financial sector is among the 30 most secretive globally and second in Africa after Algeria.
The annual index has scored Kenya’s secrecy rate at 76 per cent, meaning the country is a fertile market to stash or facilitate the transfer of ill-gotten private financial wealth and other illicit financial flows (IFFs).
Although Kenya’s Financial Secrecy Index (FSI) has dropped slightly from 80 per cent in 2018, its globally ranking has risen to position 23 from 27 globally.
”Although the country’s share of the offshore world is not large, it has increased since 2018 and it is set to increase further as the government positions Nairobi as the latest international financial centre in Africa,” the report says.
Countries’ Corporate Tax Haven Scores are scored across 20 indicators, each composed of several sub-indicators that look at the presence or absence of specific laws and policies, as well as specific combinations of laws and policies, that enable corporate tax abuse.
Furthermore, the report ranks Kenya among victims of global tax abuse especially by multinationals, losing $502.4 million (Sh54.7 billion) annually or 4.5 per cent of tax revenue collected.
The amount, according to the study is 36 per cent of the country’s health budget and is enough to hire 240,781 nurses.
The Corporate Tax Haven Index found that 40 per cent of cross-border direct investments reported by the IMF at the time – $18 trillion in value – were being booked in the top 10 countries ranked on the index, where the lowest available corporate tax rates were three per cent or less.
The State of Tax Justice 2020 reveals that multinational corporations are shifting $1.38 trillion (Sh150 trillion)in profit into tax havens each year, resulting in $245 billion (Sh26.7 trillion) in lost tax.