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What’s your link to bereaved Kenyan mother, Judith Amoit?

January 17, 2018
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Guest post from Matthew Spencer, Oxfam’s Director of Campaigns, Policy and Influencing (@spencerthink) Matthew-Spence

Judith Amoit, a 27 year-old policewoman hit the Kenyan news last year when she lost her twins shortly after giving birth prematurely in the Nairobi West hospital. She was prevented from leaving the hospital to bury her children because she couldn’t pay the £20,000 bill.  Judith was forced to appeal via the media to ‘well-wishers’ to help her pay her debt so that she could be released and retrieve her children’s bodies from the mortuary.

Judith sought care in a private hospital. Had free, quality, public healthcare been available, Judith would have been very unlikely to seek treatment privately.  Free, public maternity services in Kenya do not include emergency surgery, which is one reason why detention in private hospitals due to unpaid bills is common.

It’s a familiar picture in the developing world, but Kenya ‘s burgeoning economy ought to be able to support free, public universal healthcare. The Kenyan constitution has enshrined the right of every citizen to access health care and attain the highest available standard of health. So why is it failing to deliver?

Judith Amoit

Judith Amoit

The most critical reason is the Kenyan government’s low spending on healthcare. Kenya spends just 6% of its budget on health. Another factor is the current unchecked growth of the private healthcare sector, siphoning scarce resources away from public systems, facilitating their stagnation and decline.

But it’s also because despite a growing economy and a growing population, Kenya’s tax income is flatlining. The countries which have made the most progress towards Universal Health Coverage have prioritised spending on health through general taxation. Yet Kenya is estimated to be losing $1.1bn every year to corporate tax incentives and exemptions – nearly twice its health budget in 2015/16

Kenya’s financial choices have resulted in a maternal death rate worse than that of many poorer or more fragile states.  In the developed world, an average of one in 4,900 mothers will die from maternal causes during their lifetime. In Kenya, it’s a staggering one in 42. One in 42 mothers.

Earlier this month Oxfam produced an x-ray of the Kenyan tax system and an action plan to show how the government could begin to address the structural inequalities limiting the provision of pro-poor public services. Kenya’s economy is dynamic –  it’s been growing at around 6% a year since the financial crisis of 2008, and it could be a middle-income country by 2030 –  but it’s also dysfunctional.  Kenya’s economy is the most unequal economy in the region which is creating new barriers to its fight against poverty.  The wealth of Kenya’s richest 8,300 people equates to the combined wealth of the poorest 44 million. Many cannot afford hospital fees, and the tragedy of Policewoman Judith Amoit is not an isolated case. An estimated 2.8 million Kenyans fall into poverty or remain poor due to ill health each year.

My own personal link to Judith is the UK Chancellor (Finance Minister) Phillip Hammond. Hammond is the BritishKenya tax cover representative on the board of the IMF, which is responsible for reviewing Kenya’s economic policy. I doubt he’s aware of it, but even the IMF, famously hawkish on public spending, recommends that the Kenyan government increase health investment. Hammond is also our representative on the EU Economic and Financial Affairs Council, which has just agreed a grey list of tax havens that are required to reform their ‘harmful’ tax policy. One of these tax havens is Mauritius, which markets itself to international companies as a ‘gateway to Africa’. Mauritius has a tax treaty with Kenya that allows companies investing there to pay less tax, thus depriving the Kenyan economy of revenue for public spending on services like healthcare.

So my link is either a hop and skip from Hammond via the IMF to the Kenyan health minister to the health system that saw a grieving Judith Amit imprisoned in hospital, or it’s a hop, skip and a jump from the UK Chancellor via the EU commissioner chasing Mauritius, to the income of the Kenyan government and the budget of the same health minister. If you’re reading this as a British voter then your MP puts you one step from Hammond and either financial chain.

The question of what we can all do to support the many citizens in Kenya and beyond who are seeking decent healthcare and education is something we will address in the next stage of Oxfam’s inequality campaign, but following the money will be at its heart. The world may feel more partitioned as nationalism grows, but we are all connected by the hard wires of global finance. We are never more than a few steps from the financial decisions affecting any other citizen in the world.

 

4 comments

  1. The obvious next question is: what do we want the UK Chancellor via the EU commissioner chasing Mauritius, to do?

    It is certainly true that some DTA’s are outliers that, for example, offer investors lower withholding tax rates on dividend and interest income, and Mauritius is one of a handful of financial centres that seems to have aggressively pursued building a network of such treaties. I confess I am not sure exactly what changes the EU may be in a position to pressure Mauritius to make, perhaps with prompting from the UK Chancellor – they may be about transparency and not about the tax rates agreed with DTA signatories. But suppose for the sake of argument the EU does blacklist Mauritius because its DTAs are deemed to harm Kenya and others – and let’s set aside the question of what the Kenyan government that chose to sign them is going to think about that – will that do anything to stop investors from using Mauritius? OK, suppose you successfully lobby for the EU to impose sanctions on investors that would stop them from using blacklisted countries, would that do anything to stop investors using the non-blacklisted countries with whom Kenya has a DTA? Although it’s not yet ratified, the East African Community has a DTA offering its members low WHT rates when an investment is made from one member to another – would Oxfam lobby against these EAC countries doing that? My point is merely that there are no easy answers. For those interested, I discuss these issues at more length in my ODI paper ‘Why do development finance institutions use offshore financial centres?”

    https://www.odi.org/publications/10967-why-do-development-finance-institutions-use-offshore-financial-centres

    One point I make is that a better solution then blacklisting would be multilateral renegotiation of DTAs to remove the leaky holes in the buckets of developing countries’ tax systems. This might be done by returning to the methods used in last year’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, which fixed a few problems with DTA but did not get into things like agreeing minimum WHT rates.

    I’d also be interested in Oxfam’s stance towards tax exemptions for donor funded goods and services. I don’t know what Oxfam’s policy is here, but I do know that many NGOs do not pay taxes such as import duties and sometime income taxes on staff and subcontractors’ salaries (often working under an MOU with the tax authority). A good chunk of those losses to tax exemptions in Kenya you mention may be accounted for by NGOs and aid spending. This is a touchy subject. The countries themselves sometimes do not want to discuss it, for fear of aggravating donors, but it is on the agenda of the Platform for Collaboration on Tax and more openness about this practice would be helpful. It is not obvious what the right policy here is – perhaps some aid funded activity should be tax exempt. That raises the possibility that some tax exemptions are there for a good reason – perhaps some of these offered to corporations and investors are too.

    Could you perhaps point us towards data on the tax exemptions Oxfam claims on its spending in Kenya (and elsewhere?)

  2. Many thanks for your pertinent questions Paddy. We do think the EU can and should take action against tax havens such as Mauritius (note EU member states can take some steps but haven’t agreed joint action yet), whilst there should be co-ordinated global action against the race to the bottom. Firstly, the EU should have blacklisted Mauritius according to our understanding of its tax haven criteria, rather than putting it on the ‘greylist’. Mauritius has made a commitment to ‘end or abolish a harmful tax regime’ in order not to be blacklisted – we’d like to see the EU blacklist Mauritius if it does not significantly change its tax policies which currently attracts profits which are not created there – often from other African countries.

    No doubt part of the attractiveness of Mauritius to companies and investors is its network of tax treaties; Oxfam strongly recommends governments review these agreements to ensure that they do not unnecessarily give away taxing rights or unnecessarily lower tax rates, or promote other harmful tax practices. Civil society organisations in Kenya are currently challenging the legality of the Kenya-Mauritius DTA, questioning whether tax reliefs are necessary to bring investment. We also recommend that countries like Kenya build their tax treaty negotiation expertise so that they can’t be used for this purpose, and that parliaments should have oversight of this process so the agreement of DTAs isn’t at the whim of the executive. We explore this issue more in the Kenya tax and inequality report.

    Between the powers of developing country governments and that of international blocs like the EU, concerted action against tax havens could have real impacts. We know from our discussions with governments at risk of blacklisting that investors do take such processes into account, even before any corresponding sanctions. When a group of countries coordinates policies on tax, we also think they need to prevent pursuing a race to the bottom. So whether it is the EU or the EAC, we would be interested to see agreement on relevant minimum levels of taxation or other ways to ensure tax bases are not eroded. Such actions might complement your proposal to agree international minimum levels of withholding tax etc in tax treaties. This cooperative approach was our main recommendation of our Tax Battles report which identified Mauritius as one of the top 15 corporate tax havens. We might disagree on what policies development finance institutions should use (see our DFIs and tax behaviour report) since we think these investors have the power and responsibility to demonstrate that tax havens are not necessary. But we agree that further progress will require difficult political decisions.

    In response to your question about Oxfam as NGO receiving tax exemptions, our colleagues have confirmed that Oxfam in Kenya currently does not enjoy any tax exemptions on its spending except on humanitarian supplies that are being imported in cases of an emergency. This is an exemption applied across the board to all development agencies importing humanitarian supplies.

  3. Oliver – sorry I hadn’t seen this response. Thanks very much for it. As you may know from what I have written on this, an important question is whether a Mauritian holding company used to pool investments from foreign investors into Africa, that does not itself attract any tax in Mauritius, is depriving the African countries where the underlying enterprises are located, of any tax. Arguably yes if a particularly advantageous DTA is in place (and my report highlights those cases) but otherwise I am yet to see any convincing argument of harm. If taxes at source and taxes at residence are the same as would be if the intermediary did not exist, what is the objection? This is (often, not always) a distinct issue, I think, from MNCs using Mauritian companies to shift profits out of Africa, which I quite agree with you about.

    Thanks for the response on exemptions. We know from our research that NGOs (and their subcontractors) have sometimes claimed other exemptions (on salaries and other expenditures) in the countries that they operate, interesting to hear that Oxfam does not. I’d like to learn more about how that came about because I don’t think it’s the default arrangement. I am guessing the fact you have your international HQ there now means that extra thought was given to tax arrangements. I should probably reiterate that tax exemptions for aid (or donation) funded goods and services are not necessarily a bad thing.

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