You’ve heard the saying that “the rich get richer and the poor get poorer” and thought to yourself, hmm, it’s all about burning the midnight oil, grit, faith, and a little luck.
Typically, a huge business man or woman making billions and helping communities may appear harmless and an inspiration to many.
However, the “thorn in their flesh” is always the huge taxes they have to pay, approximately 30% of all their hard-earned cash.
Besides, who doesn’t want to keep everything to himself? They say.
Some think to themselves, “the government is a little greedy.” And what do they do as a result? Look for tax havens to protect their money.
But how? You may ask.
Is the government not all-knowing? Does the government not have high-level connections to unearth anything?
Let’s dig in.
As a business owner, the first thing that connects you to the business is your name. Without your name, no one can trace the company to you.
Such companies are called Shell Companies. They can be opened and controlled but the owner can’t be traced. As a result, the KRA can’t charge you. Besides, they only exist on paper.
And since operating shell companies is something the government may not be in support of, what do the business owners do? Locate tax-havens.
For example, countries such as Nauru, Panama, Malta, Island of Jersey, Bermuda Island, British Virgin Islands, and Cayman Islands serve as the best tax-havens.
Some of these countries have become internationally blacklisted amid concerns that they have become centers for money laundering.
Four characteristics of these countries is that they collect little to no taxes, offer incentives to foreign companies, have low or no transparency, and they don’t cooperate with other countries to give information of their clients to authorities.
Now having their shell companies and tax havens, they now go offshore and open accounts in these countries.
Then move all their money into offshore accounts to avoid being taxed.
Others get more creative and instead use fake invoices to evade taxes. For instance, if contractor A wins a Kshs. 20 billion tender to construct a tarmac road and has to do a kickback of something like Kshs. 5 billion to the “fat cats” inside the government to secure the deal, the contractor may have to claim the 5 billion as a cost. If not, the income tax liability may end up going very high hence causing huge losses.
Others try to beat KRA’s tracking system. For instance, countries such as South Sudan, and DRC are not part of the EAC and therefore, some businessmen transit their cargo to these countries.
The catch is that the cargo is under-declared hence lower taxes are paid to the respective revenue authorities. Besides, the countries not being a member of the EAC makes KRA unable to investigate the cargos.
Now you are wiser.