The End of the Last God of the Gaps -And the Downfall of Religion

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Insignias of Religions

Early humans had a relationship of wonder with their universe, especially with phenomena they couldn’t rationally understand. To solve these mysteries, the ancients created pantheon of gods to explain anything. We ended up with a god of thunder, tides, earthquakes, volcanoes, infertility, plagues, love, among others.

Thus, wherever there were gaps by ancients in understanding the world around them, they filled those gaps with God. This typically led to phenomena of the ‘God of the Gaps.’ However, as scientific knowledge increased, gaps in understanding of the natural world gradually disappeared, so pantheon of gods began to shrink. As gaps in understanding narrowed, gods that were created to fill a void in understanding shrunk.

But these gods did not ‘go gentle’. It is always a messy process for a culture to abandon its deities. Spiritual beliefs are etched deeply on peoples psyches at a young age by—hammered by parents, teachers, religious leaders. Hence, it becomes difficult to disengage from such beliefs without leaving a portrait of deviance in the wake, or suffering a social backlash. Religious shifts occur over generations, often with bloodshed.

As the gods of the gaps vanished, Zeus, the god of all gods, from whose image Abrahamic religions (Christianity, Islam, Judaism) are fashioned, has proved resilience despite the narrowing gaps in understanding of the universe.

Zeus, the most feared and revered of all the pagan deities, has resisted his own extinction, and mounted a violent battle against the dying of his own light, precisely as had the earlier gods Zeus had replaced.

The resilient of Zeus has presented unprecedented illogical scenarios. Unlike before, how can we have modern human minds, that is capable of precise logical analysis, and yet simultaneously permits acceptance of senseless religious beliefs that should crumble beneath even the slightest rational scrutiny?

We have an otherwise enlightened society. We have people admirable mental aptitude. Yet, they suffer no shame feeding their children harebrained junk such as christian analogies of the Resurrection, the Virgin Mary, Noah’s Ark, the parting of the Red Sea, heaven, and hell. How can an otherwise intelligent mind take mythologies, hook, line and sinker.

How can a modern rational individual, be an adherent to a religions that hosts wild claims—humans rising from the dead, miraculous virgin births, vengeful gods that send plagues and floods, mystical promises of an afterlife in cloud-swept heavens or fiery hells?”

Initially, it has been because even with modern rationals, there are still gaps in appreciation of nature, and Zeus has to fill such void. Secondly, wherever Zeus has been threatened, he has been spread by the brute of violence and political dominance. It is why the two leading religions, Christianity and Islam, were spread through conquests, bloodshed and by brute force of political dominance.

These arsenals are no longer viable. There is no society which is invading another to spread religion. The growth of science and advent of globalization has caused immense knowledge spread, hence closing the gap of understanding, held by Zeus.

Hence, without tools of dominance and with increasing closure of gaps of understanding. Science has filled huge void that was there. In this case, Zeus, the last God of the gaps, cannot be sustained. This will eventually lead to the collapse of the religions.

 

 

Why Governor Waititu is Right in Resuming Duty

Governor Waititu in Court.

Governor Waititu is right in resuming his duties. The power of people holding elected offices is derived directly from the people. That is why there are established mechanisms for removing them from office.

In canons of statutory constructions, there is the golden rule. A judicial official should not give meaning to a provision of a statute that results into an obnoxious results.

Assume a governor without a deputy, like Sonko, or both governor and their deputy are charged, would the county remain without leadership? The speaker of the assembly cannot assume because there is neither vacancy nor inability to act.

By asking the governor not to attend to his duties, it amounts to technically removing him from office through back door. If a governor can be removed from office by a resident magistrate, it makes a complete mockery of democracy.

Where a governor is charged, it forms a ground of removal from office, the process that is outlined.

The difference between the president and a governor, is the president is given a constitutional immunity from any prosecutions.

This doesn’t mean presidents don’t commit acts of thievery or other malfeasance. But is is logical to ring fence them from disruptions of prosecutions.

The court order barring Waititu from discharging his duties is not constitutionally grounded. Waitutu’s power is derived directly from the people of Kiambu, and only the People of Kiambu, through their MCA’s, can initiate a process of removing from office.

The enthusiastic resident magistrates should exercise some restrains, and not issue court orders, whose header is an invitation to dishonor them.

An alarming precedent. Asking the governor to keep away from office is asking him to abdicate his constitutional duties and obligations to serve his electorates.

Why the Treasury’s appetite for betting taxes is no solution to gambling problem

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By gatuyu t.j

Drawing parallels between financial markets investing and gambling is an analogy disliked in the world of finance. Yet, at a basic level, gambling and investing are identical activities, both involving wagering an outcome in an environment of uncertainty.

Speculator investors buy stock for the same reasons that gamblers bet on a certain football teams to win or choose lottery numbers. Both have same illusions. Whereas in financial markets the goal is to beat the market, in gambling the goal is to beat the odds.

Notably, investing in instruments such as derivative markets has the same potential for negative externalities as gambling, yet it has been accepted and even embraced as the newest way for investors to act either rationally or irrationally in the capital markets.

With these similarities, why does society view investing and gambling differently?

Regulators characterise investing as an enterprise of skill in which those who are diligent may earn deserved rewards, while gambling is an enterprise of chance that encourages lazy and untalented people to divert useful capital with undeserving few reaping ill-gotten gains foolishly lost by vast majority. This divergence is paternalistic, more triggered by classes of people participating and profiting in these activities.

Henry Rotich, the Treasury Cabinet Secretary, has in almost every budget speech lamented at how betting has created negative social effects to the young and vulnerable, before imposing, often hurried and haphazard, tax measures. There has been an observable heightened frenzy to control betting industry through tax measures. This is visibly creating a hostile environment for the sector’s operations.

The proposed excise duty adds to the heavy tax burden in the sector. This includes a 15 per cent betting tax levied on gross gaming revenue, 30 per cent corporation tax on profits, and 20 per cent withholding tax deducted winnings.

There are some notable anomalies with these tax measures. Betting is a form of entertainment. Levying entertainment taxes is a mandate of the county governments. Were counties to enact laws to impose entertainment taxes from betting revenue, it would add to this taxation burden.

Arguably, the betting tax currently levied by the national government, save perhaps for online betting activities, is unsupported constitutionally.

Again, subjecting the gross winnings of a player to 20 per cent withholding tax is inconsistent with best tax practice, for it creates a higher tax burden for the players. This withholding tax ought to be levied on net proceeds, after amount staked is deducted from winnings.

For tax accounting, the amount staked should be deemed to have been wholly and exclusively used for the production of this taxable income and deducted.

Further, charging betting tax on gross gaming revenue and later levying corporation tax is unjust and double taxation. Gross gaming revenue is equivalent of “sales”, not “profit”.

Corporation tax is levied on taxable profit in the company’s accounting year after expenses are deducted. As earlier argued, if betting tax has to be levied, it is the county governments that ought to charge it under the heading of entertainment tax.

Lastly, the proposed excise duty on amount staked is what is known as the Pigouvian tax. The purpose of a Pigouvian taxes is to force private markets to internalise the social cost of an activity and reduce negative externalities. It has been effective in areas such as reducing environmental pollution or controlling certain harmful consumptions.

For Pigouvian taxes to be effective in the gambling industry, there is need to appreciate the two consumer types. These are the price-sensitive recreation gamblers and price-insensitive problem gamblers.

Generally, consumption levels of recreational gamblers are disproportionately reduced by increase in cost while problem gamblers are to a bigger extent cost-insensitive. The consequence is recreation gamblers may exit the leisure and leave problem gamblers to fund the tax, bringing about inequity of incidence.

Since problem gambling triggers negative externalities, Pigouvian taxes should be applied for forms of gambling popular with problem gamblers.

Applying it across board will not achieve optimal results because negative externalities are not uniformly spread. Hence, the proposed excise duty will be a blunt tool as a Pigouvian tax.

The trend of taxing betting firms in Kenya betrays that these high, duplicating taxes are more of intention to capture economic rents than maximise economic welfare.

However, even without benefit of econometric model, the multiple taxes in Kenya’s betting sector have possibly reached the peak of the Laffer curve. A Laffer curve illustrates that revenue will increase with rate of taxation until a certain point, where further increase in tax rate will lead to drop in revenue collected.

The Treasury should therefore be sincere and drop the pretence that it is using taxation as deterrence on gambling. Such admission will enable it to create a fair tax regime with features of allocative and distributional efficiency. This will probably enable betting firms to create shared values with their customers and promote industrial competitiveness, hence enhanced revenue.

Equally, any betting tax policy initiative should not be made in a domestic vacuum. As we learn from game theory, it has to grasp possible moves of betting players relocating to offshore jurisdictions if there are significant tax savings of doing so.

This essay was first published in the Business Daily. Available Here

 The Author is the Managing Editor of the Gatuyuriana Journal

Rigid financial rules can stifle innovation

 

Governor
Patrick Njoroge, Central Bank of Kenya Governor

By gatuyu t.j

The microfinance banks in Kenya are not doing well. A report by the Central Bank of Kenya (CBK) reveals their gradual decline in profits from Sh549 million in 2015 to a loss of Sh731 million in 2017.

The CBK, in a consultative note, has formulated regulatory proposals to redeem the sector. These include enhancing corporate governance, increasing capital and liquidity requirements and reducing reliance on deposits and borrowed funds.

In summary, the CBK solution is more and more regulations. This regulatory philosophy needs to be revisited. For excessive, prescriptive, regulatory interventions in financial sector do cause market distortions and stifle innovations. Regulatory enthusiasm in addressing market failures often trigger government failures.

The goal of financial regulation is to ensure the triple objects of financial stability, consumer protection and market integrity. Each of these objects ought to be pursued on structure of a bigger picture as this essay illustrates.

Ensuring financial stability is an essential goal. However, when regulators pursue financial stability as the only overarching goal, financial institutions may become overly risk averse and refrain from discharging their intermediation functions, restraining economic growth.

Prescriptive regulations may make financial institutions consider that compliance with rules is all that is expected of them. In such a case, they may not make efforts to improve their products or services to best suit the interests of customers, limiting the financial industry’s contribution to the growth in national wealth.

The rules must allow flexibility on banks to periodically improve their services. As regulators pursue triple objects, they should not sacrifice bid for better services by market players, effective intermediation and normal market vigour and innovation.

A cursory look at the Kenya’s banking industry reveals a sector with multiple equilibria.

We have some banks making huge profits while others are struggling. A sector with multiple equilibria is ripe for disruption as the market strives for efficiency gain to a better equilibrium.

However, an efficiency shift requires change in strategy. Where prescriptive rules overhang, like in Kenya, they hinder operational flexibility. The effect is that no institution is willing to change their strategy, as the first mover from inefficient models can become disadvantaged and often becomes a prey to dominant firms, creating the prisoner’s dilemma scenario.

The result is that no bank exits from the strategy. Smaller banks are more disadvantaged as they hold on into inefficient business models. That is why supervisory approaches have to be consistent with the ultimate goal of regulation. A way the CBK can create financial stability in banks is addressing vulnerabilities in the financial system.

As successive collapse of Dubai Bank, Imperial Bank and near collapse of Chase bank illustrates, a bank’s failure has domino effects on other lenders due to the inter-connectedness. But the management of the bank may not take this potential spill-over into consideration due to information asymmetries.

Depositors may not have enough information to distinguish good banks from bad ones, yet bad lenders may cause runs on good ones. This is the danger of information asymmetries.

In promoting better services, market forces may not necessarily foster competition towards better services. This is because financial institutions have varying asset management capabilities or their dedication to customers’ interests may not be properly appreciated by customers due to, again, information asymmetries and bounded rationality, limiting differentiated growth of firms.

The question which may arise from this narrative is how the CBK can minimise government failures while addressing market failures. Sadly, the current supervisory approach by CBK on banks, as espoused in among others, prudential regulations, majorly based on compliance checks and asset quality reviews, may no longer be effective.

Mechanical and repetitive application of rules makes the industry to be obsessed with compliance with the letters of the rules (focus on form), backward-looking review of the evidence of the past (focus on the past) and analysis of details and elements (focus on elements).

Focus on forms, rather than substance, makes it easier for bankers to defend their lending decisions by referring to collaterals and guarantees than by presenting bankers’ own views on borrowers’ future business prospects. This promotes complacency on the sustainability of banks’ business models.

Where a banks regulator spends much time criticising specific past incidents of misconduct, they may fail to discuss whether firms meet the changing needs of the customers. The CBK should expand its supervisory approaches from a backward-looking, element-by-element compliance check with formal requirements to substantive, forward-looking and holistic analysis and judgment. This would ensure banks better contribute to the ultimate goal of regulation. To this extent, CBK can adopt a supervisory approach with three pillars.

The first pillar is the enforcement of minimum standards. Such includes accounting standards on loan classification, loan write-offs and loan loss provisioning, capital adequacy requirements, rules on consumer protection and market integrity, internal controls, all as a precondition for adequate business management.

The second pillar is the dynamic supervision. On this, the CBK would avoid imposing a one-size-fits-all solution across the industry by developing approaches to engage in constructive two-way dialogue with an individual financial institution and explore solutions tailored circumstances.

The third pillar is promotion of disclosure and engagement with financial institutions to encourage them to adopt best practices. Basel III, the international framework for prudential supervision of banks, recommends these three pillar approach.

The Author is the Managing Editor of Gatuyuriana and financial markets specialist

NOTE: This essay was first published in the Business Daily. Available here https://www.businessdailyafrica.com/analysis/ideas/Rigid-financial-rules-can-stifle-innovation/4259414-5060636-2cg30o/index.html

Retail investors can spur vibrant capital markets

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Photo source: Courtesy

By gatuyu j

This essay was first published in the Business Daily

Having deep capital markets is a reliable mechanism to unlock new pools of capital and ensure efficient allocation of resources in the economy. However, establishing vibrant capital markets is a drawn-out process requiring a mix of financial instruments, stable regulatory framework, market infrastructure, and a critical mass of market participants.

The Kenyan capital markets is underdeveloped relative to economy’s potential. The trading at the Nairobi Securities Exchange (NSE) is characterised by low liquidity in both equity and fixed incomes segments. The turnover ratio averages at five percent with some counters running for weeks without an activity.

Ordinarily, efficient markets should have well-balanced supply and demand sides of capital. In the past, policy measures have majorly focussed on the promoting demand side of the markets, on creating new instruments and encouraging issuers, without equivalent efforts to spur the supply side markets especially in relation to broadening the investor base.

A constant supply of capital is a critical pillar for securities market. A way of nurturing it is by ensuring every class of investors is able to get their desired outcome from the markets. Investors, both retail or institutional, are either “buy and hold investors”, “buy and trade investors”, “active investors”, and “private market investors”.

However, there has been a tendency to encourage the “buy and hold” investors and discourage active traders or speculators, on account of discouraging short termism approach to the markets. This view is unfortunate. Stable capital markets needs all groupings of investors irrespective of their anticipated outcome. The vilified speculators, for instance, provide liquidity to the markets and improve the quality of pricing.

Thus, the next frontier in deepening Kenya’s capital markets is widening the investor base. Currently, the main class of investors are institutional and foreign investors, and participation of retail investors is limited. Institutional and foreign investors bring in capital and skills to the market. However, in the case of foreign investors, their dominant participation in small markets may have de-stabilising effects. They pose a ‘sudden stop’ risk, where capital inflows are quickly reversed as a result of changes in the domestic or international risk environment, resulting into sell-offs and markets meltdown.

To broaden demand side of the markets, participation of local retail investors has to be encouraged. There have been reports of Kenyans recently being duped into sham investments. Sad, as these tales are, some lessons can be learnt. A number of citizens are on the lookout for attractive investments opportunities, a gap the capital markets should tap.

A hindrance for entry of retail investors in Kenya capital markets result from market illiquidity, high transaction costs and market power of brokers. These impediments need to be addressed.

Of these, a transactions cost is a major one. The brokerage fee for a trade transaction at NSE is two percent of amount involved. A buy and sell of equities results into transaction costs of four percent.

To this extent, for an investor to break even, a traded stock has to generate a return of about five percent, which is not easy to actualise in short runs. These transactions costs are detrimental.

This makes a case for introducing the direct market access mechanisms to enable retail investors directly interact with the order book of the exchange without having to pass through a broker-dealer. Stock brokerage is a disrupted practice. Trading has moved from traditional open outcry on trading floors to decentralised electronic, screen-based trading, where investors can trade for themselves rather than handing orders over to brokers for execution.

The law should not require it be mandatory that traders must access order book through brokers. Instead, stockbrokers should justify their continued relevance through value addition for traders to engage them.

Transaction costs

Adopting direct market access mechanism would certainly lower transaction costs, because only the technology is being paid for and not the usual order management. This would give traders more control over the final execution and the ability to exploit liquidity and price opportunities.

Another way to improve market liquidity is by reducing the trading cycle from the current settlement of three days (T+3) to same day settlement (T+0). Such will encourage more retail traders, especially the speculators, and increase trading volumes and facilitate more price discovery. The NSE should be able to demonstrate similar efficiency showcased by online sports betting firms.

Related, promoting margin trading would equally improve market liquidity to benefit of retail investors. Margin trading would enable investors increase their purchasing/selling power. The regulations to operationalize margin trading have been made, but the product is yet to be operationalized.

Lastly, the regulators must maintain a tempo of robust protection of investors by guarding against fraudulent practices which kill market confidence. A recent energised effort by Capital Markets Authority on allegations of insider trading in dealing with KenolKobil shares is encouraging.

Nevertheless, more is needed in legal reforms, especially in protecting minority investors especially against lock-in from protracted takeovers. To attract retail investors, above the liquidity of investments and attractiveness of returns, the safety of their invested money has to be assured. This combines with proactive investors’ education, especially on evidence-based, sensible investment strategy.

How Kenya Can Regulate Initial Coin Offerings

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Photo: courtesy

By gatuyu t.j

The Capital Markets Authority (CMA) has in numerous occasions issued public cautions to warn the public against investing in initial coin offerings (ICO) that have floated by various start-ups, citing the unregulated nature of the offering and the risk of investors losing their money.These cautions comes on a background of continued surge of ICOs as a new model of fundraising, with parallels to initial public offerings (IPO), venture capital, and crowd funding.

ICOs allow Blockchain-based ventures to raise money by creating and selling digital assets usually known as “tokens”. Even though ICOs continue to be a prominent source of fundraising, some have turned out to be speculative ventures without underlying utility, triggering regulatory actions.

New ideas facilitate market efficiency, spurring improvements to services and products and promote market competition. In guiding new innovations, regulations should address and potentially mitigate negative externalities.

In a rapidly changing world of finance, regulators ought to recognise the unique dynamics of emerging technologies and discourage regulatory environment with largely binary outcomes, of either approval or disapproval, which lacks flexibility and often torpedoes innovations.

IPO versus ICO

A company issuing tokens to the public in return for funds is a setting that strongly resembles an IPO used for traditional securities. However, there are visible distinctions. Whereas an ICO leads to the creation of digital tokens on Blockchain, an IPO leads to the distribution of shareholdings to the public, often through underwriters.

Only well-established private companies with profitability record are allowed to carry out IPOs, while ICOs are floated by start-ups on basis of proof of concept outlined in a whitepaper. Lastly, IPOs offer dividends from company profit as a form of return while ICOs offer tokens which have prospects of value increase after a project launch.

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Paul Muthaura, CEO, Capital Market Authority. Photo source: CMA

The ICOs have been able to gain huge popularity because they have certain merits. First, unlike the IPOs, an ICO enables the compensation of initial developers without giving them more control of the network than other token holders.

For in IPOs, founder shareholders often reserve certain controlling rights in the management of a corporate entity. Second, ICOs permit a venture to finance from future users, similar to the pre-sale of goods or forward contracts, and this provides issuers with an early signal about consumer demand, enabling better informed investments in building.

Further, ICOs tokens have high liquidity, which triggers instances of temporary overvaluation (phenomenon that also exists in IPO markets), leading to huge gains for investors. Lastly, tokens can hasten network effects, which are often central to the marketplaces that ICO issuers seek to build. This is experienced where token price appreciation leads more users to join the platform, even though this may have an offside of facilitating market bubble creation.

Criteria for a security

In exploring the regulatory status of ICOs, interrogation usually centres on whether an ICO meet the definition of a security. The Kenyan Capital Markets Act provides a broad definition of security and includes a phraseany instruments commonly known as securities.”

There are no clear guidelines in Kenya or court decision that has clarified when an investment contract becomes a security. In other jurisdictions,a criterion popular as the “Howey Test”, which originated from a US Supreme Court decision, is often applied to determine whether an investment scheme qualifies as a security.

The Howey Test postulates that an investment will be deemed to be a security if it meets four conditions. An offering will be a security where an investment of money is made by the purchaser, the investment is part of a common enterprise among numerous investors, the success of the enterprise depends on the efforts of a third-party promoter, and the investor has an expectation of a financial return, such as capital gains.

Applying Howey Test for ICO in Kenya will end with a conclusion they are an offer of securities, hence subjecting the offer to a slew of capital markets regulations, and eventually killing it.

Rules are necessary for proper functioning markets in order ensure market fairness and integrity, protect investors and facilitate systemic stability. However, it is impossible to regulate new innovations like traditional securities.

Many statutes in the financial sector in Kenya date back decades. As a result, the regulatory framework is not optimally suited to address new business models and products that continue to evolve in financial services. This has the potential negative consequence of limiting innovation to the detriment of consumers and small businesses.

If it not for regulatory restraints expended by former CBK governor Njuguna Ndung’u, perhaps M-Pesa similar payment systems may not have been allowed to operate. By the CBK allowing M-Pesa to operate, without unduly alarming the public with public cautions, it fast-tracked the development of this product to the giant it is today.

Agile Regulations

The mix of technology and its applications to financial services has increased dramatically. It is important for financial regulators to adopt appropriate regulatory approaches without stifling innovations that require time to mature, or create unnecessary barriers to innovation.

Agile regulations and mechanisms such as regulatory sandboxes programs ought to be encouraged, for they facilitate controlled disruption. Further, there need to spearhead proactive amendments of the laws to ensure they keep pace with development in the financial sector.

For every new innovation presents its inherent risks. The regulatory environment should instead be flexible so that firms can experiment without the threat of enforcement actions that would imperil the existence of a firm. Innovating is an iterative process, and regulator feedback can play a helpful role while upholding safeguards and standards.

The regulators should been seen to encourage innovation. They should strive to acquire and understand existing and emerging technologies, to engage with developers and first-movers. Otherwise, the country will lose its repute as a centre of financial innovation. Instead of always issuing warning, CMA should work with innovators and ensure services such as ICO are rolled out successfully. That is the way to foster vibrant financial markets and promote growth through responsible innovation.

The author is the Managing Editor with the Gatuyuriana and a financial markets specialist.

How Kenya can Avoid Tax Evasion Practices by Mining Companies

BE AFRAID, dear countrymen. All the oil prospecting companies operating in the country, such as Tullow oil, are subsidiaries of holding companies incorporated in shadowy tax havens. When mining firms employ harmful tax practices, such as use of tax havens, it portends a Potential tax leakage. Consequently, when the mineral resource is depleted, these multinationals will easily vacate the country to explore elsewhere. Like President Maghufuli has done with Acacia, Kenya must stop these vultures.

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President Kenyatta flagging off early export of Kenya oil from Turkana county. Photo: Courtesy

By gatuyu t.j

In mid-2017, Pombe Magufuli, President of Tanzania, threatened to close mining companies operating in Tanzania. He accused them of not being truthful with their tax obligations on gains accruing from their mining activities. Acacia, a global mining company, bore more of presidential wrath and was issued with a huge assessment of backdated tax liabilities. The case is pending.

Kenya is revamping her extractive industry. The country needs to early on learn from Tanzania to deter tax evasion practices in the sector. This will prevent revenue leakages and ensure the country gains from her resources.

Tax evasion practices by multinationals in extractive industry are a rampant in Africa, making the continent to be unable to benefit from her vast natural resources. A report by a joint team of AU and the United Nations, chaired by Thabo Mbeki, found out that in 2015 alone, African countries lost up to USD 50 billion through tax avoidance schemes.

The extractives industry in Kenya has not been spared from such schemes. A study dated May 2016 by Oxfam, “the Use of Tax Havens in the Ownership of Kenyan Petroleum Rights,”found out that various mining companies in Kenya use intricate corporate structures to hold petroleum rights in order to minimise tax liabilities. This includes owning mining blocks through offshore subsidiaries registered in tax havens. These are all tactics that create room for the companies to erode their Kenyan taxable base and shift profits to affiliates located in offshore low tax jurisdictions.

The study gives examples of mining companies that use offshore entities. These include British Tullow Oil (Netherlands), Africa Oil (Barbados), ERHC Energy (Virgin Island) Octant Energy Corp, Ophir Energy (Bermuda), Swiss Oil (Mauritius), Total (Netherlands), among others.

Kenyans should be worried to have her mining sector dominated by companies employing aggressive tax planning practices. It is an indicator the government may not be able to collect sufficient taxes from the mining industry. The same concern was raised by the Ministry of Energy and Petroleum, in December 2016 in report, titled Social Assessment of the Petroleum Sector in Kenya, which called for raising accountability bar in mining sector.

When mining firms employ harmful tax practices, such as use of tax havens, it portends a Potential tax leakage. Consequently, when the mineral resource is depleted, these multinationals will easily vacate the country to explore elsewhere.

Whenever tax consultancies are accused of facilitating these harmful tax avoidance practices by multinationals, they turn militant and unleash clever sounding clinches’ of how tax avoidance is different from tax evasion, and how tax payers are entitled to arrange their affairs to prevent a large shovel of a taxman into their stores. It does not sink. Exploiting the tax system to prevent the country from accruing appropriate benefit from her resources is immoral.

Silicon Valley giants have perfected the art of notorious and aggressive tax planning. However, such firms are present in the long run and a solution on how to curb these practices may be found. The same leisure cannot be accorded to the extractive industry. Minerals are finite. They can only be extracted once.

It is vital that a country accrues maximum benefit from the windfall. The government should therefore do all is possible to protect the revenue base from the country’s mining wealth. We cannot afford a rat race the countries are doing with tax evading tech firms with extractive industry.

It therefore does not matter whether tax havens are legal or otherwise. They are toxic non-value adding jurisdictions that facilitate harmful and immoral tax practices. They facilitate the creation of shadow long-winded corporate structures, which are nothing but smokescreens to avoid accountability. Entities registered in tax havens should not be allowed to own mining blocks in the country.

Kenya needs to pre-empt a predicament facing President Magufuli. The country should aggressively streamline the regime of taxation in the extractive industry to deter possibilities of tax leakages.The companies operating in the sector should be required to maintain high disclosure requirements in line with international best practices.

This would include requiring them to lift veils of their corporate structures and reveal their ultimate beneficial owners.Increasing transparency is a step to deter potential profit shifting. It will also ensure the country benefits from her mineral resources fully for the benefit of her citizens.

The author the Managing editor of the Gatuyuriana