Tobacco control advocacy lobbys Treasury to probe BAT for tax avoidance

The Kenya Tobacco Control Alliance (KETCA) has written to the National Treasury calling for the investigation of the British American Tobacco (BAT) over alleged corporate tax avoidance.

In a letter addressed to Treasury Cabinet Secretary Henry Rotich dated May 27, 2019, the civil society group points to the recently published report by the Tax Justice Network (TJN) which accuses BAT of swindling low and middle income countries billions in taxes.

“Given the economic burden of the global tobacco epidemic, we believe an investigation into BAT for corporate tax avoidance is an important first step for your department to take,” noted KETCA Chairman Joel Gitali.

The April report by TJN documents BAT complex schemes to shift its tobacco profits from the world’s poorest countries through among other methods the channelling of profits internally through royalty payments by subsidiaries, the issuance of intracompany loans and the shift of dividend payments into tax havens across the globe.

Corporate tax losses from the elaborate tax avoidance scheme by BAT in Kenya are estimated at Ksh.270 million (USD 2.7 million) per year with the risk of revenue earnings by continental governments from the single unit projected to hit Ksh.70 billion (700 million USD) by 2030.

This even as the firm faces investigations on tax avoidance in other jurisdictions to include the Bangladesh, the United Kingdom and the Netherlands.

While the law remains mute on the avoidance of tax to effectively sanctify the activity, Consumer Information Network (CIN) Chief Executive Officer Samuel Ochieng argues for the fair share settlement of the firm’s tax arrears highlighting on the devastating consequences of its products.

“Tax avoidance may be legal, but when it comes to a company that is causing such kind of harm then we would expect to see a seal to existing loop holes,” he said.

According to the UN-backed World Health Organisation (WHO), tobacco use costs the global economy up to Ksh.114 trillion (1.4 trillion USD) each year in the form of healthcare costs and lost-productivity.

The WHO further recommends the raising of the tax threshold on tobacco to 70 percent as an effective way to step back on tobacco dependency.

Any sudden turn in taxation by the Treasury is however expected to be met by heavy criticism by the tobacco manufacturers with BAT for instance currently engaged in a tax brawl with authorities at both the National and County level.

BAT Kenya Managing Director Beverly Spencer has since called for a predictable and stable tax environment to facilitate the governance of the industry.

“We were pleased to see the Government take on board the concerns of business and amend the inflationary adjustment cycle from every two years to annually, providing much-needed predictability and stability. However, while it is the last resort, and where we have exhausted all engagement options, we reserve the right to challenge certain issues in court,” noted Mrs. Spencer in the firm’s 2018 annual report.

BAT for instance remains in the opposition of a 2017 sanctioned 87 percent increase of the cost of tax stamps and has further challenged the proposed 2014 Tobacco Control Regulations, in a matter which now awaits judgement.

In spite of the tightening tax regime, BAT has continued irking out a profit announcing most recently a 24.2 percent increasing in earnings after tax to Ksh.4.1 billion having remitted Ksh.18.3 billion over the period running to December 31, 2018.