Advertise

Advertise

Kenya, China in double taxation deal to spur trade and investment

 

Kenya plans to sign an agreement with China to end double taxation of income or gains arising from one country and paid to residents of the other.

The deal, which will be subject to ratification by both the Chinese and Kenyan parliaments, is meant to create a conducive environment for investment and trade in goods and services between the two countries.

National Treasury Cabinet Secretary Ukur Yatani has asked Kenyans for their views before Kenya signs the deal.

Kenya and China are major trading partners but the trade deficit between the two countries has been widening with China increasingly exporting more goods into the country.

Statistics released by the Kenya National Bureau of Statistics (KNBS) last month showed Kenya’s trade deficit with China widened to Sh425.17 billion in the year through March 2022 from Sh370.58 billion a year ago, a 15 per cent jump.

China accounted for 20.27 per cent, or Sh446.65 billion, of Kenya’s Sh2.2 trillion import bill in the review period, which is a 15.23 per cent growth from Sh387.61 billion in the prior year.

Kenya has however increased earnings from its exports to China which grew at a rate of 26.09 per cent to Sh21.48 billion.

China is also Kenya’s second-largest external lender after the World Bank. By the end of May this year, Kenya owed Sh1.19 trillion to the World Bank and Sh796.46 billion to China.

A review of the intended Double Taxation Agreement (DTA) between Nairobi and Beijing showed it would focus on trade and investment, education and research as well as sports.

Kenyans studying in China, for example, will be exempted from paying tax on cash sent to them for tuition and upkeep in the proposed deal.

This provision will also apply to apprentices and business trainees seeking further training in the Asian nation.

While official statistics on the number of Kenyan students studying in China are scant, it is estimated that thousands of them head to the Asian country each year in search of education in technology, medicine and commerce, among others.

The move is likely to spark increased interest from students to study in some of China’s top learning institutions as it will reduce their cost of learning and accommodation.

The DTA will also see Chinese firms paying income tax on their business in Kenya get a reprieve from paying the same tax in China unless what they are required to pay on the income in China is higher.

The same will apply to Kenyan firms doing business in China.

“Where a resident of China derives income from Kenya, the amount of tax on that income payable in Kenya in accordance with the provisions of this agreement may be credited against the Chinese tax imposed on that resident,” states the DTA.

However, the agreement deals a blow to sportspersons working or participating in events in China as their income will still be taxed both in China and Kenya.

This also applies to radio and television personalities, actors and other players in theatre or motion picture as well as musicians and other entertainers.

Kenya has signed dozens of DTAs with its major trading partners including the United Kingdom, South Korea, Germany and Egypt with others under consideration, negotiation, or signed but yet to take effect.

New double-tax treaties with key trade partners such as the East African Community and the United Arab Emirates have been concluded.

Double taxation leads to the loss of a significant portion of income for both individuals and corporations, which also face the challenge of incurring higher employee costs as a result of the higher taxes expatriate labour has to pay.      BY DAILY NATION  


No comments

Translate