The East African Taxation and Governance Network (EATGN) comprises civil society organizations (CSOs), academics, and individuals with diverse interests in tax justice within the African Community. ‘East (EAC).
EATGN recognizes the growing need for a concise understanding of taxation in public financial management (PFM) debates in individual member states and in the region. Indeed, taxation is essential for economic growth in terms of infrastructure development, service delivery and wealth creation.
A Double Taxation Agreement (DTA), also known as a Double Taxation Agreement, is a bilateral (bipartite) agreement entered into by countries to resolve the issues of double taxation of the passive and active income of each of their citizens or entities. respective within their jurisdictions. . Such treaties generally determine the amount of tax a country can apply to a taxpayer’s income, capital, estate, or wealth.
CDIs are a subject of interest due to the increasing degree of globalization which has resulted in competition among various economies, especially to increase national income. Over the past decade, East African economies have rushed to negotiate tax treaties. While many of them are still under negotiation and therefore not in effect, this means a change in fiscal policy.
The demand for Double Taxation Agreements (DTAs) has arisen due to various contexts in the region such as:
- More constitutionalism requires the implementation of new principles of public financial management.
- Growth of trade and services between countries in the region or with other countries of the world.
- Discovery of natural resources requiring more influx of foreign direct investment.
- New economic vision that was initiated at the turn of the 21st century, for example EAC Vision 2050, AU Vision 2063, Burundi Vision 2025, Kenya Vision 2030, Rwanda Vision 2050, Uganda Vision 2040 and Tanzania Vision 2025.
Kenya has the highest number of DTAs in the region. It has a total of 15 tax treaties of which 7 were ratified after the adoption of Kenya’s 2010 constitution (COK 2010). The top ten countries in the world that have signed DTAs in the EAC region are:
- In the first place is South Africa which has 4 treaties in force.
- India, Zambia, Denmark and Norway come second with 3 treaties each.
- China, Iran, Korea, Kuwait, Mauritius, the Netherlands and Singapore each have treaties.
DTAs allow individuals and businesses in one country residing in another country to be taxed only once in each country for the same income. They constitute the legal basis for the protection of taxpayers against direct and indirect double taxation.
They also protect investments against non-commercial risks such as nationalization, confiscation, foreclosure, asset freezing, creation of authorized investments, and transfer of profits and income in convertible currencies. DTAs create a legal framework for tax authorities to cooperate without violating the sovereignty of other countries or the rights of taxpayers.
However, while DTAs have been hailed as catalysts for international trade and investment by equitably and efficiently sharing tax rights among participating countries, studies have indicated that DTAs have been used by developed countries for the benefit of their multinational companies.
CDIs in the region still differ considerably with regard to permanent establishment, profits, dividends, interest, management or professional fees, royalties, capital gains, other income and elimination of the tax. double taxation open to exploitation through tax fraud and evasion.
As a result, they are potentially damaging to the capital importing countries involved. On August 19 and 20, 2019, EATGN participated in an expert meeting to discuss the Kenya-Mauritius Double Taxation Treaty (CDI) ruling and its relevance in different jurisdictions.
The meeting provided the relevant experts with the opportunity to broaden their understanding of the recent court ruling that overturned the Kenya-Mauritius DTA.
The meeting also discussed the possibilities and limitations of this decision to develop a future strategy using the results of the case as a framework to help CSOs pursue tax justice by preventing illicit financial flows in the EAC.
As a result of these consultations, EATGN is committed to engage in the promotion, training and research of DTAs at the regional level. This was based on the opportunity offered by the decision against the Kenya-Mauritius DTA lawsuit to develop a new strategy and advocacy efforts needed to challenge harmful DTAs through the EAC.
The court ruling against the Kenya-Mauritius DTA is an unprecedented case in which a CSO won against the government.
However, its impact is poorly understood among parliamentarians, academics, non-governmental organizations (NGOs), faith groups and the general public interested in tax justice debates, especially at the regional level.
The decision temporarily halted the implementation of the treaty, exerting significant political influence in the area of revenue and highlighting the advances of tax justice advocates in terms of innovations or approaches in the fight for better public finance management.
Given the traditional dominance of governments in making decisions about what, who, when, and how to tax, this decision opened up space for more stakeholder groups to have a direct impact on how to influence now. the trajectory of fiscal policies.
It is now possible to further influence the issues in these exclusive spaces on the rules or promotion of trade and investment through advocacy efforts such as public litigation which requires strict respect for the constitution, such as in the case of Kenya.
Despite this, there is still a lack of awareness, hence an urgent need to have a wider range of actors more involved in tax discussions in various East African jurisdictions in order to give more momentum for DTA advocacy efforts.
This can be done by raising awareness through the production of evidence and capacity building that will help various entities to develop adequate policy and make the issue of IDUs more relevant to the ordinary citizen.
It is therefore imperative to ask: what activities and interventions are necessary in the medium and long term to advance the agenda against harmful IDUs in East Africa; what are the political issues related to the development of IDUs; and how can we develop the active participation of larger groups in the larger EAC?
Shortly after the expert meeting, a specific need arose to answer two crucial questions following further interactions with EATGN members in Burundi on DTA issues.
Besides defining what a DTA is, their purpose and their need to interview them, EATGN members asked: how many DTAs have their country; and with which countries have their governments signed DTAs?
Based on EATGN’s engagement at the expert meeting, this publication is a quick attempt to begin to answer questions raised by its members as the start of efforts to build contextual evidence, build capacity and raise awareness. the issues surrounding DTAs in East Africa.
With regard to the East African region, the tax treaties that were negotiated and ratified before 2010 appear to give Kenya more tax rights compared to those negotiated after the new constitution. One would expect that, with the current liability obligations under the law, the regulator, the Kenya Revenue Authority (KRA), would be able to calculate the amount of taxes lost and / or earned for existing CDIs that are in effect.
In addition to this, citing the provisions of the Treaty Making and Ratification Act 2012, he presumes that a “regulatory impact assessment” is carried out prior to the conclusion of the treaty. Therefore, this information should be readily available.
From an East African perspective, Tanzania has concluded negotiations but has yet to ratify data transfer agreements with EAC, Vietnam, Oman and Botswana. In addition, negotiations of data transfer agreements are underway at different levels with the United Arab Emirates, the Netherlands, Mauritius, Turkey, China, Morocco, Iran, Kuwait, Korea. South and UK. There is no ongoing renegotiation of existing CDIs.
For Uganda, the current treaty allocation rules for passive income (dividends, interest and royalties) and technical fees are largely fair to the country as a source country and a net importer of capital.
The main concern that needs to be addressed in treaties with emerging global trends in taxation is redefining the permanent establishment and moving away from “fixed place” to a value-created tax system.
Rwanda has a total of 7 tax treaties in force. Of these seven tax treaties in force, two were signed in the early 2000s. The other 6 tax treaties were signed during the last decade, with exactly one tax treaty concluded each year from 2013.
The Burundian tax system inherited from the colonial administration was applied until 2007. Considerable efforts were made to modernize it and adapt it to the challenges of globalization. Burundi recently ratified the tax treaty signed with other EAC states. Other agreements with the Arab Republic of Egypt, Turkey and the United Arab Emirates are still in the process of being adopted.