Kenya has been ranked the top nation in Africa where money laundering, tax evasion, and concentration of untaxed wealth is rampant.
According to the Financial Secrecy Index of the Tax Justice Network, Kenya is ranked at position 24 globally and ahead of Nigeria(34), Angola(35), Egypt(46) Mauritius (51), Cameroon(53) and South Africa(58).
In its latest report, the United Nations Conference on Trade and Development(UNCTAD) titled Tackling Illicit Financial Flows for Sustainable Development in Africa, the organization lists the world’s top providers of financial secrecy as Cayman Islands, United States, Switzerland, Hong Kong (China), Singapore, Luxembourg, Japan, Netherlands, British Virgin Islands, United Arab Emirates.
The report notes that digital business models have allowed firms to avoid tax liabilities. For example, intangible assets are hard to value and easy to move, which makes them an important tool in profit-shifting strategies; the minimal physical presence needed for digital business models allows firms to design business structures that circumvent existing permanent establishment rules.
African governments are seeking to address this problem through a variety of routes beyond simply corporate income tax. To address the main problem of low corporate income taxes, some African countries have adopted a range of innovative measures.
Kenya, for example, has designed a proposal to expand its definition of a permanent establishment, to include digital advertising platforms. Some African countries have been seeking to use other taxes to respond to the situation.
This includes value-added tax, which, for example, South Africa has now imposed on sales
of applications through mobile platforms.
Uganda has attempted to levy value-added tax on foreign providers of digital services. Several countries, including Uganda and Zimbabwe, have also introduced tariffs on digital financial transactions.
Furthermore, digital technologies have expanded opportunities for cybercrime and offered platforms to trade illegal goods and services by providing a wide range of features that facilitate the illicit transfer and use of money.
The report notes that insufficient or no regulation of most intermediaries operating online enables transactions to take place without anti-money-laundering measures.
There are several tools associated with money-laundering and digital technologies, such
as mobile banking or online non-bank payment services.
Online non-bank payment services, in particular, are prone to illegal financial flows, owing to their mostly unregulated nature. These services provide a fast, cheap and anonymous means to make payments and international transfers, which makes them vulnerable to illicit transfers.
Kenya has also recorded the second-largest amount in returned stolen assets to African countries as at January 2020.
At KSh17 billion, Kenya is third behind Libya (Sh14.2 billion) and Nigeria, which commands a healthy lead at Sh1.4 trillion in recovered stolen cash as of early this year.
The UNCTAD Economic Development in Africa Report 2020 notes that Africa loses KSh 8.9 Billion in illicit financial flows every year.
“Illicit financial flows strip government treasuries of needed resources for development expenditure. The report’s findings confirm that such financial flows are high in Africa and have been increasing over time,” said Dr. Mukhisa Kituyi. UNCTAD Secretary-General.