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 gov- ernments to win contracts.
It has emerged that the British currency-print- ing conglomerate, De La Rue PLC, is now apply- ing diplomatic pressure on the new administra- tion of President William Ruto to intervene in its favour in long-running tax disputes with the Kenya Revenue Authority currently valued at Sh 3.8 billion.
The tactics by the multinational currency printer have raised eyebrows because it is ra- re to find multinationals resorting to high-lev- el 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 dip- lomatic relations between the UK and Kenya following recent high-profile diplomatic en- gagements between President William Ru- to and UKPrimeMinisterRishiSunak,where the two leaders promised to fast-track British in- vestments in Kenya. That was followed by this week’s visit to Nairobi by UK Foreign Secretary James Cleverly.
According to correspondence seen by The Weekly Review, top officials of the company re- cently visited the Kenya High Commission in London to lodge complaints against KRA. Con- sequently, the Ministry of Investment, Trade and Industry has weighed in by putting pres- sure on KRA to provide an update on the cur- rency printer’s lamentations.
Correspondence shows that the CEO of De La Rue,Mr Clive Vacher,is expected to be in Nairo- bi this week to meet top officials of the new ad- ministration to discuss the multinational’s leg- acy 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 co- incidental.
One of the cases at issue is a long-running 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 Decem- ber 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 timenow.KRA won at the Tax Tribunal on this matter in May 2021.
The third case, a withholding tax matter val- ued at Sh1.5 billion,is currently under Alternative dispute
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 marshalling diplomatic muscle and lob- bying to bear in its bid to break into the mul- ti-billion business of printing tax stamps. The Weekly Review has seen correspondence where De La Rue has informed the government that it has not been able to make profits from the bank note printing contracts it has been exclu- sively 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, in which 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, Ken- ya Bureau of Standards (KEBS) and Huduma Cards.
Depending on how 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 conglom- erate , 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 administra- tion 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 en- trenched the Swiss com- pany’s stranglehold over stamp printing contracts. But perhaps what best illustrates the high level of political support and pa- tronage the Swiss con- glomerate has been en- joying under President Uhuru’s Kenyatta’s admin- istration was a scheme by a committee that was co-or- dinated from the Office of the President by the long- name Multi-Agency Techni- cal Working Group on the Pro- posed Integrated Product Marking and Authentication System.
This committee proposed to introduce something called an “Inte- grated Government of Kenya Mark”. That instead of the current situation, where multiple agencies, including KRA, KEBS, KEPHIS, and the Anti-Counterfeit Au- thority are involved in product authentication and issuance of tax stamps, what Ken- ya needed was new a system where is- suance of product authorisation and tax stamps was centralised and run on one platform under the KRA-owned and Sicpa-man- aged 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, which was to be issued centrally by KRA, but Parliament was dissolved before dis- cussing the Bill. Whether this was a deliberate scheme to give Sicpa the monopoly of print- ing stamps for all government agencies is an open-ended question, but the plan was going to benefit Sicpa.
The political support and patronage that the Sicpa contract enjoyed under former Presi- dent Uhuru Kenyatta 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 commit- ted to‘make the EGMS system available for use by other government agencies. The contract document also commits KRA and Sicpa to pro- vide forensic services to support investigations and prosecutions by Kenya authorities and en- forcement agencies.
The fact that Sicpa and KRA went ahead to unilaterally contract an arrangement where the Sicpa-managed EGMS would dominate and monopolise provision of stamps including prices to other entities is perhaps the most intriguing aside of the saga.
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