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China, Kenya will eliminate double taxation

By Lucie Morangi | China Daily Africa | Updated: 2017-09-29 10:16

Newly signed deal, expected to boost investment, comes as trade between the two countries swells

Kenya has signed a tax deal with China that will see entrepreneurs who conduct business in both countries pay taxes in just one jurisdiction.

Double taxation, the levying of taxes by two or more jurisdictions on the same declared income, creates a considerable hindrance to business transactions that go across borders.

The move, according to Henry Rotich, cabinet secretary of Kenya's treasury, comes as trade and investment between the two countries swells.

The signing of the Double Taxation Agreement in Nairobi, Kenya. Lucy Morangi / China Daily

He also expects that, once put into practice, the deal will embolden Chinese entrepreneurs to invest in Kenya's nascent textile, leather and agri-processing sectors. According to Rotich, other similar treaties have increased foreign direct investment in the country, and Kenya is targeting more Chinese investment to boost its industrialization.

"We strongly believe that this will address the yawning trade imbalance between the two countries, as Chinese industries plan to relocate to Africa to avoid high wages back home to maintain their competitive edge," Rotich said while witnessing the signing of the deal at the treasury building in Nairobi.

China is currently the leading source for Kenya's imports, which stood at $32.7 billion in 2016, compared with exports of $96.9 million.

The Agreement on the Avoidance of Double Taxation came after two years of negotiations. It was signed by Sun Ruibiao, the deputy commissioner of the State Department of Taxation of China, and Kamau Thugge, principal secretary of Kenya's National Treasury.

In his speech, Thugge said the agreement will create certainty for taxpayers on the taxation of various cross-border incomes derived from either country. "The provisions on mutual agreement procedure and exchange of information are very important and should be utilized to ensure the smooth implementation," he said. "This will ensure that there is no tax avoidance and evasion through tax planning as we seek to eliminate double taxation."

He added that the deal should foster deeper relations between the tax administrations of the two countries through capacity building, exchange programs and the transfer of skills on taxation and customs matters.

Also present at the signing was China's ambassador to Kenya, Liu Xianfa, who noted that local entrepreneurs exporting tea and flowers to China will benefit immensely from the agreement.

"We have around 400 Chinese businesses in Kenya. The agreement is therefore historic to the development of China-Kenya investment operations," said Liu. "I believe that it will open doors to more Chinese investors in Kenya."

He said China is ready to work with Kenya as it implements its development blueprint, Vision 2030. Last month, the Chinese government gave the East African country three high-technology container scanners to boost the efficiency and capacity of the revenue agency.

The double taxation deal has drawn accolades from various quarters. Henry Njeru, managing director of Njeru Industries, which exports teas to China, is optimistic that the deal will be very helpful. "Certainly it will increase Chinese investors' eagerness to settle in Kenya," he says.

The company is looking forward to forging a partnership deal with Chinese investors worth $10 million that would open doors to Kenya's prized beverage to the Chinese market. "The tax treaty will definitely reduce our tax burdens," Njeru says.

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