EAC nations plan joint crackdown on tax evasion

EAC and member states flags on June 24, 2010. FILE PHOTO | NMG

By BRIAN NGUGI
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Summary

• Tax agencies in the East African Community (EAC) bloc have proposed a joint crackdown on firms evading taxes through cross-border transactions.
• The heads of seven tax authorities including in Kenya, Tanzania, Uganda, Zanzibar, Rwanda, Burundi and South Sudan said the joint legal framework will curb the tax evasion by rogue multinationals, that are estimated at billions of shillings every year.

Tax agencies in the East African Community (EAC) bloc have proposed a joint crackdown on firms evading taxes through cross-border transactions.

The heads of seven tax authorities including in Kenya, Tanzania, Uganda, Zanzibar, Rwanda, Burundi and South Sudan said the joint legal framework will curb the tax evasion by rogue multinationals, that are estimated at billions of shillings every year.

“The East African Community Secretariat (will) come up with an agreed framework on how to address base erosion and profit shifting and illicit financial flows within the East African Community,” said the heads of the seven tax authorities after a meeting in Nairobi on Wednesday.

“This will be addressed through legislation covering the various business models and administrative measures.”

The United Nations has often warned that multinationals are shifting income from developing nations to tax haven affiliates by using abusive transfer pricing. The Organisation for Economic Co-operation and Development(OECD) has a similar concern that multinationals are engaged in base erosion, that is shifting income from a developed nation with high tax rates to tax haven affiliates.

“A team consisting of Commissioners of Domestic Taxes and Directors of ICT to hasten the work on this,” the EAC tax bosses said in a joint communique. They warned revenue collection from the EAC is under threat from the fraudulent practices.

Over- and under-invoicing in the regional bloc facilitated the illegal inflows or outflows of more than $60 billion (Sh6.5 trillion) in the 10 years to 2011, a past report by the Global Financial Integrity (GFI) said.