Recently, I’ve been thinking about how much I would love to set up a company in Nairobi, but how much I would resent paying taxes to a government that seems corrupt at all levels and which does little, if anything to help the country at large.
Thinking back to my sarcasm-fuelled post on the budget deficit, it occurred to me that perhaps it might be possible to operate in Kenya while not being based in Kenya.
It would actually be a fairly simple proposition: set up a “head office” outside of the country, with a representative handling company affairs at the Nairobi branch. Provided all the paperwork were in order to present yourself as a “foreign” company with employees who receive their salaries from abroad, it would be a simple matter of filling out paperwork essentially claiming that you had nothing to declare and that any profits had been “repatriated” and taxed under the regulations of wherever the company was based. If that country had a double-taxation agreement with Kenya, no tax would be paid to the Kenya Revenue Authority (KRA). Easy.
Naturally, it would take some pretty fancy financial footwork, with regards to how the company’s accounts were handled, but supermarkets and motor manufacturers have been running similar scheme for years, not only to minimise the amount of tax they pay, but also – in some cases – avoiding paying tax altogether. I’m sure the Kenyan tax code is riddled with loopholes that could be exploited to the same ends, and that it’s actually possible to operate in the country while paying taxes elsewhere.
Of course, the problem with this scenario is that one would essentially be operating as hypocritically as the politicians one wishes to avoid paying. On the one hand, they have done little to demonstrate that they spend the taxes they collect wisely (unnecessary and uninvited trips to Obama’s inauguration, anyone?). On the other, there is q social contract: a Kenyan sending their company profits abroad is as bad as all those politicians who have squirrelled away their looted booty in Swiss bank accounts. Money has to circulate in the economy in order to have any effect, and it can’t do that if it has been sent elsewhere.
Nevertheless, I would still greatly resent paying taxes to the current crop of Kenyan politicians, to support the institutions of the state as they currently stand. The thought of Kenyan businesses staging a “tax strike” and refusing to pay anything until the government got its act together is an appealing one, but also unrealistic. There is not the level of solidarity amongst the populace as a whole – never mind the business community – that would make one viable. Nor is there any way of ensuring the government would not simply confiscate private property in lieu of monies owed.
Is there a way to square the circle? Are there any circumstances where witholding tax from the authorities is acceptable? Is there any way to run a business in Kenya without gnashing one’s teeth whenever a tax bill comes due? And are taxes in Kenya too high or too low for the businesses already operating? I can tell you one thing: if the budget deficit gets any worse, they’re going to get higher very soon.
[Image by DBKing]