The 2018 Tax Justice Network’s Financial Secrecy Index (FSI) has ranked Kenya as not only the top financial secrecy jurisdiction in East Africa but in the whole of Africa as well.
According to Tax Justice Network, financial secrecy refers to a situation where an entity refuses to share financial information with legitimate authorities such as revenue, security, and so on. This means that Kenya is among the countries where the rich can hide their money, pay fewer taxes and have limited supervision from the authorities.
Kenya was given a secrecy score of 80.05%, which led it to be ranked 27th out of 112 countries. It was ranked the leading country in Africa despite it being the first time it was featured in the index. It was followed closely by Liberia, which had a secrecy score of 79.70%. Countries which topped the index throughout the world include Switzerland, the US and Cayman Islands.
Kenya coming on top of the index in Africa can be accredited to the fact that President Kenyatta recently signed the Nairobi International Financial Centre Act into law essentially transforming the city of Nairobi into a tax haven through the establishment of the Nairobi International Financial Centre (NIFC). This is in line with Kenya’s Vision 2030 that aims to encourage foreign direct investment (FDI), protect the economy from external shocks and make the country the top financial centre in Eastern and Southern Africa.
According to the IMF, an international financial centre is a city where most of the financial activities are offshore where “transactions are initiated elsewhere, and the majority of institutions involved are controlled by non-residents.”
As a result of establishing the NIFC, the Tax Justice Network believes that Kenya has become an example of how interests of western financial service lobbyists have successfully lured governments into a race to the bottom.
The report also adds that an estimated $21 trillion to 32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world. Secrecy jurisdictions usually use secrecy to attract illicit and illegitimate or abusive financial flows.
The secrecy world creates a criminogenic hothouse for multiple evils including fraud, tax cheating, escape from financial regulations, embezzlement, insider dealing, bribery, money laundering, and plenty more. It provides multiple ways for insiders to extract wealth at the expense of societies, creating political impunity and undermining the healthy ‘no taxation without representation’ bargain that has underpinned the growth of various nations.