15th October 2021 Political and Regulatory Round Up

October 15, 2021 - 5 minutes read

KRA ASSURES ON THE INCLUSIVE FRAMEWORK ON BASE EROSION AND PROFIT SHIFTING

The Kenya Revenue Authority (KRA) has allayed fears on the possible loss of revenue from multinational technology firms following the signing of an international Inclusive Framework to reform international tax rules.

The fears had been sparked last week, following an announcement from the OECD that significant reform of the international tax system has been finalised, and it will ensure that Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023.

Speaking at the just concluded 7th KRA Annual Tax Summit opening, KRA Commissioner General Githii Mburu said Kenya had shared its technical concerns with the agreements and was party to the ongoing developments spearheaded by the OECD and G20 countries.

The introduction of the Digital Service Tax in Kenya, he said, had helped to curb tax avoidance by multinational firms engaged in digital enterprises. With the growing revenues generated from such MNE’s, Kenya, he said will consider the benefits of the Inclusive Framework cautiously.

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (IF) has agreed on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy.

The Country he said was actively consulting and has shared a detailed technical proposal with the OECD to ensure a win-win outcome in the ongoing global developments focusing on the taxation of digital sector players.

The Country, he said, will clinically analyse the benefits accruing from the proposed framework and will not rush to forego current benefits arising from the implementation of the Digital Service Tax.

“Although we have not signed on the agreement, Kenya is fully seized of the developments, and I can confirm that we are party to these engagements, as a trendsetter on matters digital taxation. We have already shared our technical concerns on the all-inclusive framework thresholds, and we will continue engaging to ensure that we have a winwin outcome,” Mburu assured.

Kenya’s position on the Inclusive Framework was supported by several speakers including Panama based Executive Secretary of the Inter-American Center of Tax Administrations (CIAT), Mr Márcio Verdi who delivered a keynote address on “The OECD inclusive framework and its impact to Africa: Opportunities for developing countries”.

Nigeria supported Kenya’s position noting that the Inclusive Framework had deviated from the earlier agreed mandate of developing a solution to address tax challenges for the digital economy.

“It was widely held that a multilateral approach would be the most appropriate means of achieving a standard set of coordinated rules which would strengthen the international tax system. However the reality we now faced is a far cry from expectation,” Federal Inland Service Nigeria Group Lead, Special Tax Operations Group Mr Mathew Gbonjubola said.

Last week, the OECD confirmed that 136 countries and jurisdictions representing more than 90% of global GDP had agreed to the all-inclusive framework. The framework focusing of reforming the international tax system is also expected to facilitate the reallocation of more than US$ 125 billion of profits from around 100 of the world’s largest and most profitable MNEs to countries worldwide, ensuring that these firms pay a fair share of tax wherever they operate and generate profits.

Following years of intensive negotiations to bring the international tax system into the 21st century, 136 jurisdictions (out of the 140 members of the OECD/G20 Inclusive Framework on BEPS) joined the Statement on the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy. It updates and finalises a July political agreement by members of the Inclusive Framework to reform international tax rules fundamentally.

With Estonia, Hungary and Ireland having joined the agreement, it is now supported by all OECD and G20 countries. Four countries – Kenya, Nigeria, Pakistan and Sri Lanka – have not yet joined the agreement.

On his part, Mburu confirmed to the local and international delegates that Kenya has continued to upscale its capacity to handle contemporary tax revenue mobilisations challenges.

Besides digital tax administration, KRA, he reiterated, has enhanced its capacity to handle illicit financial flows (IFFs), having built up technical capacity and adopted international legal instruments, including ratifying the Mutual Administrative Assistance in Tax Matters Convention (MAC).

The Authority, Mburu further assured, is only collecting taxes as outlined in the law. “KRA is a law-abiding institution and is only collecting the taxes prescribed and allowable in law. Not a shilling more as we continue to partner with all government agencies in revenue mobilisation and tax compliance,” he said.

On his part, KRA Chairman Amb Francis Muthaura confirmed that the authority is looking forward to the proposed National Tax Policy, which is currently under formulation by the National Treasury.

The Summit, Amb Muthaura noted, has continued to inspire conversations necessary to accelerate revenue mobilisation.

Anchored on the theme, Revenue Mobilization Within a Rapidly Evolving Taxation Landscape: Global Trends, Analyses & Resolutions, the Summit featured several engagement panels comprising local and international subject matter experts in the tax, national planning and related economic development fields.

The Summit focused on KRA’s readiness to reimagine tax administration past the Covid-19 pandemic, developing tax professionals for the future and tackling illicit financial inflows and their impact on Africa’s development. The Summit will also focus on the role of technology, brand awareness, and tax simplification in enhancing service delivery. The three factors are among the fundamental pillars on which the success of a modern tax administration is pegged.

The deliberations made at the annual tax summits yearly are invaluable to KRA and other players involved in the making and implementation of tax policies. Like the previous tax summit fora, the seventh annual tax summit will provide a platform for sharing tax ideas, innovations, and strategies that have successfully worked in other jurisdictions worldwide.

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