De La Rue flexes its diplomatic muscles in tax battle with KRA
British multinational printer De La Rue’s offices in Ruaraka, Nairobi, in March 2012.
Diplomacy is always in a state of flux, and its latest economic version is playing out in Kenya and elsewhere in Africa. Rather than face international competitive bidding to win contracts in Africa, it seems more and more that European multinationals are now resorting to diplomatic pressure on governments to win contracts.
It has emerged that the British currency-printing conglomerate, De La Rue PLC, is now applying diplomatic pressure on the new administration of President William Ruto to intervene in its favour in long-running tax disputes with the Kenya Revenue Authority currently valued at Sh3.8 billion.
The tactics by the firm have raised eyebrows because it is rare to find multinationals resorting to high-level diplomatic lobbying to resolve tax disputes, especially over matters that are not covered by tax treaties and in circumstances where some of the matters are the subject of pending court cases.
De La Rue is clearly taking advantage of what would appear to be a new era of improved diplomatic relations between the UK and Kenya following recent high-profile engagements between President William Ruto and UK Prime Minister Rishi Sunak, where the two leaders promised to fast-track British investments in Kenya. That was followed by this week’s visit to Nairobi by UK Foreign Secretary James Cleverly.
Legacy issues
According to correspondence seen by The Weekly Review, top officials of the company recently visited the Kenya High Commission in London to lodge complaints against KRA. Consequently, the Ministry of Investment, Trade and Industry has weighed in by putting pressure on KRA to provide an update on the currency printer’s lamentations.
Correspondence shows that the CEO of De La Rue, Mr Clive Vacher, is expected to be in Nairobi this week to meet top officials of the new administration to discuss the multinational’s legacy issues with the domestic tax authority. The fact that the visit was planned to coincide with Mr Cleverley’s visit to Nairobi is clearly not coincidental.
One of the cases at issue is a long-running Value Added Tax (VAT) case where De La Rue insisted it should not have been required to pay VAT, but on which the Tax Tribunal ruled against the UK firm in May 2021. The case, valued at Sh 1.2 billion, was due to be heard at the High Court on December 8.
The second case, a long-running corporation tax case for the years 2013–2017, which was valued at Sh1.1 billion, was heard at the High Court in March 2022 and a decision is due any time now. KRA won at the Tax Tribunal on this matter in May 2021.
The third case, a withholding tax matter valued at Sh1.5 billion, is currently under Alternative Dispute Resolution — the mechanism that provides for dispute resolution before matters are taken to the Tax Tribunal.
De La Rue has expressed interest in resolving the matter but the parties have yet to agree on the figures for payment of royalties. The correspondence also shows that De La Rue is also marshalling diplomatic muscle and lobbying to break into the multibillion-shilling business of printing tax stamps.
The Weekly Review has seen correspondence where De La Rue has informed the government in a letter that it has not been able to make profits from the banknote printing contracts it has been exclusively getting from the Central Bank of Kenya.
The background to this aspect of the saga is the following.
In 2019, the government closed a joint venture agreement with De La Rue where the government paid Sh700 million for a 40 per cent stake in the company. But De La Rue is now telling the government that, after the joint venture was concluded, the printing plant in Kenya has neither made a profit nor paid dividends to its shareholder ostensibly because it has not had an opportunity for key domestic projects for printing security stamps for government entities, including KRA, Kenya Bureau of Standards (Kebs) and Huduma cards.
Depending on how the new administration of President Ruto responds to new diplomatic pressures from Kenya’s former colonial power on the matter of tax stamp contracts, the stage will have been set for fierce competition with the Swiss conglomerate Sicpa that has dominated the space for many years.
President Ruto has recently complained loudly about the number of tax stamps sold in Kenya, sparking speculation that the political support which the Swiss conglomerate enjoyed under the administration of former President Kenyatta was on the wane. Last year, KRA quietly signed an addendum to the existing seven-year old contract with Sicpa that effectively co-entrenched the Swiss company’s stranglehold over stamp printing contracts.
Political support
But, perhaps, what best illustrates the high level of political support and patronage the Swiss conglomerate has been enjoying under President Kenyatta’s administration was a scheme by a committee that was coordinated from the Office of the President by the Multi-Agency Technical Working Group on the Proposed Integrated Product Marking and Authentication System.
This committee proposed to introduce something called an “Integrated Government of Kenya Mark”. That, instead of the current situation where multiple agencies, including KRA, Kebs, Kenya Plant Health Inspectorate Service, and the Anti-Counterfeit Authority, are involved in product authentication and issuance of tax stamps, what Kenya needed was new a system where issuance of product authorisation and tax stamps was centralised and run on one platform under the KRA-owned and Sicpa-managed Excisable Goods Management System (EGMS).
To give legal effect to the proposal, the committee had gone to the extent of compiling the Integrated Government of Kenya Mark Bill, 2022, that was to be issued centrally by KRA.
Parliament was dissolved before discussing the Bill. While whether this was a deliberate scheme to give Sicpa the monopoly of printing stamps for all government agencies is an open-ended question, the plan was going to benefit Sicpa.
The political support and patronage which the Sicpa contract enjoyed under the Kenyatta regime is further demonstrated by the fact that, even before the plans to pass the law to introduce the proposed Integrated Government of Kenya Mark, Sicpa and KRA were allowed to go ahead and consummate a deal to secure exclusive deals for printing stamps for the Sicpa system. Under the new deal, KRA and Sicpa committed to make EGMS available for the use by other government agencies.
The contract document also commits KRA and Sicpa to provide forensic services to support investigations and prosecutions by Kenya authorities and enforcement agencies.
The fact that Sicpa and KRA went ahead to unilaterally contract an arrangement where EGMS would dominate and monopolise provision of stamps — including prices — to other entities is perhaps the most intriguing part of the saga.
