Why is there a lack of parliamentary participation in African double taxation agreements?
By Everlyn Muendo and Leonard Wanyama
The recent nullification of Double Taxation Agreements (DTAs) by several African governments has been a ground-breaking moment in tax justice advocacy, revenue debates and pursuits of economic justice in general.
DTAs are pacts which divide taxing rights between two or more states on cross border income and are sometimes interchangeably referred to as Double Taxation Treaties (DTTs).
Kenya, Senegal and Zambia each cancelled their respective DTAs with Mauritius. This was based on the realization that in one way or another their state interests were infringed upon by how their respective agreements took away their taxing rights.
This undermined public finance management (PFM) principles, affected domestic resource mobilization (DRM) capabilities and enabled the facilitation of increased illicit financial flows (IFFs).
For instance, in Senegal the government lost up to USD 8.8 billion due to tax avoidance by major mining companies such as Grande Corte Operations and SNC Lavalin. This was possible thanks to the two entities setting up shell companies in Mauritius in order to take advantage of loopholes in the Senegal-Mauritius DTA.
Such progressive steps by governments have been lauded as a step in the right direction. However, even while these actions are celebrated, the lack of legislative involvement in the policy process of formulating DTAs in the respective countries and beyond is noted as a worrying trend.
This is deeply concerning because parliament is the representation arm of government comprising directly elected officials, primarily vested with the power of the people in protecting public interests.
It is therefore wrong to not include them in such important procedures of formulating DTAs. Why then are parliaments marginalized from these processes and how is this exclusion from treaty making taking place?
A game of synonyms – the danger of not qualifying DTAs as ‘treaties’
In order to understand what is limiting parliamentary participation in treaty making, it is important to know how DTAs are defined. According to the Vienna Convention on the Law of Treaties (VCLT), a treaty is an:
‘’international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation.’’
This definition is considered as the standard governing best practices in relation to binding international treaties. Obviously, DTAs are treaties if one simply bears in mind that they are agreements between two or more states, are in written form, and are governed by international law.
This understanding has been adopted verbatim in the laws of Kenya and Zambia, specifically those guiding processes of treaty formulation. However, both countries have added a qualifier to this definition as to why bilateral agreements should not be considered treaties. This creates a game of synonyms that makes an unclear discrepancy in the law.
For instance, in the Kenyan case, bilateral agreements do not qualify as treaties because they are pacts between two states that are mainly concerned with administrative matters. This is as opposed to treaties which are pacts on issues of higher significance such as sovereignty or human rights.
This distinction is mischievous because it goes against international best practice. Logically, any international commitment requires accompanying technical directions that help in achieving its consequential aims.
Separating the meaning of agreements from treaties is an attempt to frustrate dispute resolution processes in which the VCLT definition is always used with regards to the interpretation of rules regarding the implementation of international treaties.
Essentially, the rule of thumb as per VCLT, requires reference to the context (legal or otherwise) of the treaty in question to gain the true (negative or positive) impact of a DTA. This is in order to determine the managerial instructions of implementation based on provisions within it.
In further examining the interpretation of DTAs this means authorities need to refer to available models and their respective commentaries. This will often be done through utilising either the Organisation for Economic Co-operation and Development (OECD) model, the United Nations (UN) model or the African Tax Administration Forum (ATAF) model.
Besides general concerns in relation to double taxation, the UN model is designed to include broader considerations from developing nations. Meanwhile the ATAF model is more specific in taking up the concerns of African countries in order to offer more favourable interpretations for their use.
This is supposed to ease the process of interpreting technical issues by domestic authorities. In the Kenya- Mauritius DTA case, this would have been a useful approach in determining the petition that challenged the constitutionality of the treaty, and, in addressing substantive issues raised.
Further, this would have made it easier for the court to understand or examine technical issues of the DTA in view of the allegations that the treaty was likely to result in significant revenue leakages for Kenya. Ultimately, in making this distinction between treaties and agreements, this game of synonyms is dangerous because it limits the interpretation or technical understanding of content within DTAs.
It is also detrimental because it could result in future court or tribunal decisions that may effectively reduce the taxation rights of the government, thereby resulting in lost revenues and the institutionalisation of tax injustice or inequality.
Lastly, by failing to consider DTAs as treaties and thereby acknowledging whether they are full legal instruments or subsidiary legislation, such interpretations weaken parliamentary participation or procedures in DTA treaty making.
Legal practice that weakens parliamentary participation
Surprisingly, parliaments pass the very laws that weaken their participation in DTA policy formulation processes. This is especially the case in relation to treaty making laws.
In the East African Community (EAC), these include Kenya’s Treaty Making and Ratification Act of 2012 as well as Uganda’s Ratification of Treaties Act of 1998. Meanwhile Zambia’s Ratification of International Agreements Act of 2016 can be cited as another problematic law.
These laws establish the process of how governments enter into any agreements with other states and they also play an important role of indicating the means of domesticating these international treaties through the process of ratification.
Ratification enables international agreements to have the force of law within a country because it shows the willingness of a government to be bound by a treaty. Such official endorsement is normally achieved through the approval of either the cabinet, parliament and or a combination of these two state organs.
In Kenya and Zambia, the law requires that the Cabinet approves a treaty after which it is passed on to the parliament for consideration then ratification.
After attaining this legislative consent, an instrument of ratification is made and deposited with a relevant international authority or state. A copy of this is then sent to the Registrar of Treaties and included in the list of official agreements the country subscribes to.
This required procedure shows a clear process for parliamentary participation in treaty making. It is necessary so that legislators can effectively protect public interest and, as in the Kenyan context, specifically ensure that these treaties do not conflict with the Constitution. Yet in many African countries, DTAs are not being subjected to this standard of legislative scrutiny.
This is because the additional clarification in treaty making laws, distinguishing DTAs as bilateral agreements, legally lowers their hierarchical significance thereby reducing their parliamentary relevance.
Basically, the game of synonyms weakens the legislative role at a crucial stage of oversighting the domestication of international obligations because ratification of DTAs is not viewed as a significant issue in the massive schedule of parliamentary business.
While the Executive, through the agency of Cabinet, can enter into bilateral agreements on behalf of the people of Kenya, parliament remains supreme in determining affairs in relation to PFM especially because matters of taxation and other resources are a question of national sovereignty.
Executive Overreach through Statutory Instruments
Unfortunately, in both the Kenyan and Zambian context the executive can enter DTAs through extensive powers given to it by income tax legislation. This widespread influence amounts to overreach since the agreements are then not subjected to effective public scrutiny from parliament as all treaties should.
Moreover, practice shows that when the executive arm enters DTAs they are subsequently relegated to subsidiary legislation, that is, laws made by a body other than the parliament. This happens because parliament uses statutory instruments to delegate such authority to institutions of government like ministries, departments or agencies and their respective high ranking decision making officers.
According to the Parliament of Kenya, The National Assembly Fact Sheet No.21 on Statutory Instruments this form of delegated authority can be described as:
Any rule, regulation, direction, form, tariff of costs or fees, letters patent, commission, warrant, proclamation, by-law, resolution, guideline or statutory instrument issued, made or established in execution of a power conferred by or under an Act of Parliament under which, that statutory instrument or subsidiary legislation is expressly authorized to be issued.
Generally, it is expected that once these powers are granted and implemented within stipulations of the law then there would be no need for extensive parliamentary input. Therefore, DTAs get less scrutiny as subsidiary legislation through their description of being ‘simple’ agreements.
Regrettably, the reality of subsidiary legislation is that government bodies or officers who are delegated authority through statutory instruments tend to overreach and claim powers they do not possess or out rightly abuse them.
This then results in processes that harm the level of public participation and scrutiny required by limiting conformity to the constitution plus subsequent legislation such as the Interpretation and General Provisions Act, the parent law from which delegated authority is drawn, all the way to the Statutory Instrument Act itself.
With exact regard to the Statutory Instrument Act, this procedural sidestep undermines its standards of delegated authority that require consultation with stakeholders, preparation of regulatory impact statements and explanatory memorandum, plus tabling of issues in parliament; especially on issues that have revenue implications.
This means that by failing to consider DTAs as treaties, they are -by technical means- driven to a lower legislative hierarchy, where due to poor practise tax issues are subjected to subordinate examination by parliament thereby dangerously limiting the rights of government to collect the required resources that help in the provision of public goods and services.
Need for Parliamentary Action
Such failures essentially derail the fiscal sovereignty of states by not properly exercising taxing rights. DRM efforts are then undermined resulting in wider development ramifications on the socio-economic needs of citizens due to lowered taxation that affects revenue allocation and expenditure capacity.
African parliaments need to take up a stronger role as far as DTA matters are concerned. This can be done in two ways. First, is by utilizing their powers as captured in ratification laws to change treaty formulation processes.
Treaty making laws need to reflect that DTAs are a serious issue of fiscal sovereignty for the state because they are fundamentally obligatory treaties like any other and are therefore not a lower form of legal designation.
Secondly, African parliaments need to increase their oversight on the affairs of Cabinet and any other body involved in the formulation of DTAs. For instance, this could be through insisting on public availability of revenue data used for executive decision making in entering DTAs. Such an examination can become a means of further scrutinizing various legislations that suspend any aspect of income tax law.
— The authors work for EATGN. Contact Email: firstname.lastname@example.org