Investigating corporate tax affairs in Kenya

Wednesday, 11 November 2015 14:07 GMT

Moses’ investigation took him, amongst other places, to Mauritius; frequently referred to as a low-tax jurisdiction. Photo: Reuters/Jacky Naegelen

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Moses Michira, a Kenyan journalist who took part in the Foundation’s Wealth of Nations programme, recently published an investigation into the tax affairs of a multinational company

Moses Michira, a journalist who took part in the Foundation’s Wealth of Nations programme, recently published an investigation into the tax affairs of a multinational company that produces plastic water tanks in his home country of Kenya.

While it is widely known that tax payments are minimised by multinationals the world over, relatively few investigations have been published that demonstrate precisely how companies plan their tax affairs in Africa, often avoiding large payments to the countries in which they operate.  

Moses explained how he undertook the investigation: 

“The story is actually part of the project that I pitched during the Wealth of Nations training in Uganda, on the harm that tax havens were doing to developing economies - specifically how Mauritius was draining resources from Kenya.

“I had listed several firms, including Flame Tree Group - most of whose operations are in Kenya and which wholly owns Roto Moulders that manufactures plastic water tanks. This was the company which became the subject of my investigation.

“Flame Tree Group was listed last year, and in its information memorandum, the company reported that it was represented in Mauritius and the UAE, both tax friendly jurisdictions.

“The firm's first annual report as a listed firm gave the breakdown of the operations and dividends paid during the year.

“There were however red flags when looking at how the incomes for the parent company were earned.

“The manufacturing arm, which employs more than 1,000 people - mostly in Kenya - reported a loss of about $220,000. Corporation tax here is charged at 30 percent.

“The trading arm called Cirrus, based in Dubai and employing 2 people according to the Managing Director, generated about $2 million. Corporation tax in the UAE is nil.

“The net profits were then consolidated in the parent office in Port Louis Mauritius - where corporation tax is 3 percent.

“But Mauritius has a double tax agreement with Kenya, which allows individuals with earnings in both jurisdictions to determine where their taxes are to be paid.

“I was able to get a top official in the firm to reveal that that Roto Moulders had typically paid a very small amount in corporation taxes in its best years.”

Interviewed for the investigation, Roto Moulders Managing Director Heril Bangera said that while they were unable to disclose their exact sales volumes, most periods since their best trading years in 2011 and 2012 had been worse, and the firm could not remit any cash as income tax because it did not make any profit.

He also said his firms always aspired to be the best corporate citizens in the jurisdictions they operate in.

On the amount of tax paid by the parent company, Flame Tree Group, Bangera said he could not break down how the taxes were shared between Kenya, Rwanda, Ethiopia, Mauritius and Mozambique.

This investigation adds to the growing number to come out of the Wealth of Nations, the Thomson Reuters Foundation’s pan-African programme on illicit financial flows, tax abuse and oil reporting. Other investigations include:

As Moses says: “Kenya is losing significant amounts of money to tax arrangements like this which would otherwise be payable to the State as revenues, which could then be directed to the betterment of lives through better health, education, water, security among others - which the people living in the slums where the firm's operations are based are in need of.

“I am hoping that the second phase of my investigation would enable me access to the actual profit shifting by examining the invoicing between the sister companies forming the Flame Tree Group.”

Read the full investigation here