Kenya, China to sign double taxation agreement

Kenya and China are on the verge of signing a crucial agreement to address the issue of double taxation of income or gains arising from one country and paid to residents of the other. This move comes as a relief to many individuals and businesses operating between the two countries, given the complex tax implications they face under the current regime. The impact of double taxation has been particularly felt by Kenyan farmers, students, and businesses engaged in trade with China. Rufus Kamau, Lead Market Analyst at EGM Securities, shed light on the intricacies of the proposed agreement in an interview with CNBC Africa. Kamau highlighted the challenges faced by individuals conducting business and educational activities across the Kenya-China corridor. He explained that the current system results in individuals being taxed in both countries, leading to a significant financial burden. For instance, a Kenyan student studying in China could be taxed on the funds sent by their parents for tuition fees, in addition to facing taxation in Kenya on any income generated there. This double taxation scenario has strained relations between the two nations, especially considering China's status as Kenya's major trading partner. The proposed agreement aims to mitigate the adverse effects of double taxation by allowing taxpayers to account for taxes paid in one country when filing returns in the other. This would prevent individuals and businesses from being taxed twice on the same income or gains. However, complexities arise when determining which taxation rate takes precedence, as taxpayers may still be liable for additional taxes depending on the higher rate between the two countries. When discussing the potential beneficiaries of the agreement, Kamau pointed out that while certain sectors like entertainment are exempt from the deal, the business sector stands to gain significantly. Chinese firms operating in Kenya would benefit from reduced tax liabilities in China by offsetting taxes paid in Kenya. Given the current trade imbalance favoring China, where Kenya imports more than it exports, the agreement could incentivize Kenyan businesses to expand trade activities in China. The widening trade deficit between Kenya and China, as evidenced by recent statistics, underscores the urgency for Kenya to diversify its export portfolio and boost local industries. Kamau emphasized the need for Kenya to negotiate better trade terms with China to address the trade imbalance and enhance export opportunities. Failure to do so could result in China benefiting more from the agreement than Kenya. In the context of regional trade dynamics, Kamau highlighted the significance of the East African market, including regional economic communities like the EAC. He noted that the Chinese market presents vast opportunities for African agricultural products, with high demand that local producers may struggle to satisfy. As such, effective negotiation and strategic trade deals are crucial for African countries to leverage the Chinese market while protecting their local industries. In conclusion, the upcoming double taxation agreement between Kenya and China signals a step towards easing tax burdens and fostering greater economic cooperation between the two nations. The agreement holds the potential to drive bilateral trade growth and provide a more favorable environment for businesses and individuals engaged in cross-border activities. As negotiations progress, all eyes will be on the outcomes and the implications for both Kenyan and Chinese stakeholders.