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BAT feels the heat over tax evasion

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Kenya Tobacco Control Alliance (KETCA) has called upon the government to prioritise regulations that enable the maximisation of corporate tax revenue from British American Tobacco (BAT).

KETCA chairman Joel Gitali said that BAT avoids paying full corporate taxes which would have been used for public services like healthcare to treat tobacco related illnesses in low and middle income countries like Kenya.

“BAT evades tax by using its multinational corporate structure to pay the minimum amount of corporate tax in countries that most need the revenue and bribing policy makers such as Kenya Revenue Authority thus robbing the country of vital resources to pay for public services,” he noted.

The Tax Justice Network (TJN)’s 2019 report dubbed ‘Ashes to Ashes’, which was launched on Monday by KETCA, indicates that  there are a range of reduction mechanisms BAT employs such cross border payments made within the multinational group for royalties, research, intragroup lendings and dividend payments to shift  profits from the world’s poorest counties.

Other schemes, according to the report, include shifting profits internally by requiring wholly owned subsidiaries to make royalty payments, IT payments and Intellectual property fees to other arms of multinational company.

Gitali, who was speaking during a media briefing and launch of the report, said  BAT is depriving low and middle income countries of millions of dollars in public funds.

“Given the economic burden of the global Tobacco epidemic in our country and the latest findings from Tax Justice Network, we believe an investigation into BAT for corporate tax avoidance is an important step that the government should take,” he said.

Gitali further asked the government to ensure public accountability of tobacco companies by requiring publication of country by country reporting alongside company accounts –a measure which has been shown to cut tax avoidance immediately and also provide insights into where tax authority should challenge abuse.

“The government should also review and renegotiate international tax treaties that are excessively disadvantageous to lower income countries like Kenya. It should also closely scrutinize the tax affairs of tobacco companies to reduce profit shifting,” he added.

Consumer Information Network Chief Executive Officer Samuel Ochieng’ noted that  while making efforts to prevent corporate tax avoidance, low middle countries like Kenya should increase the excise tax on tobacco products to 70 percent or more of the retail  as recommended by World Health Organisation (WHO).

“The price measure on tobacco will help reduce its consumption as low income people will cut on their usage and thus improving the health effect and burden of tobacco,” he said .

He noted that 55 percent of communicable diseases in hospitals are as a result of tobacco and 50 percent of deaths caused by the same. In Kenya, 7 000 deaths annually are caused by tobacco consumption.

KETCA Head of Communication and Digital Advocacy Achieng Otieno also urged the government to seal the loopholes which include justifications of tax avoidance that tobacco industry is using to avoid paying taxes.

According to WHO, tobacco use is the world’s leading cause of preventable death, killing seven million people each year. Tobacco use costs the world Ksh 141.8 trillion each year in healthcare cost and loss of productivity.

According to the report, Governments around the world must investigate BAT and all multinational tobacco companies for corporate tax avoidance in order to reduce or eliminate these practices.

They should also maximise corporate tax revenues from tobacco companies in order to pay for essential public services such as the healthcare treatment of those affected by tobacco related diseases.

The report estimates that if the implied foregone tax revenues are taken to reflect ‘business as usual’ from now until 2030, the  eight countries most affected namely Kenya, Uganda, Zambia in Africa and, Bangladesh and Indonesia in Asia as well as Brazil, Guyana and Trinidad & Tobago in Latin America and the Caribbean would suffer a total loss of nearly Ksh 70.8 trillion from the tax avoidance of a single tobacco company, BAT.

According to the Ashes to Ashes report in 2015 and 2016, the Kenya Revenue Authority may have received up to Ksh 273.4 million less in revenue per year due to BAT routing of dividend payments via the Netherlands.

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