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Business Beat: Why tax amnesty on cash stashed abroad may be manipulated

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by November 21, 2016 General

Treasury formalised the amnesty through the Finance Act of 2016, by introducing a provision in the Tax Procedure Act granting the amnesty to taxpayers who earn taxable income from foreign sources. The deadline for the Amnesty was set to be December 31, 2017.PHOTO: COURTESY

When Treasury Cabinet Secretary Henry Rotich took to the podium during this year’s budget speech, he made an unprecedented decision. That wealthy Kenyans who have stashed cash abroad will get a blanket amnesty to repatriate the money tax-free with no questions asked about the origin of such wealth.

“Taxpayers who will take up this amnesty shall have all principal taxes, interest and penalties for the income year, 2016 and the prior year’s automatically remitted in total. In addition, the Government will not follow up on the sources of such incomes and assets declared,” Mr Rotich said in his budget speech.

Treasury formalised the amnesty through the Finance Act of 2016, by introducing a provision in the Tax Procedure Act granting the amnesty to taxpayers who earn taxable income from foreign sources. The deadline for the Amnesty was set to be December 31, 2017.

Kenya Revenue Authority (KRA) Commissioner General John Njiraini said the amnesty is for year of income ending on any date in 2016 but the window closes by December 31, 2017, which is the last date for filing returns for the amnesty.”

However, the amnesty will not apply in the case where the taxpayer is under audit or investigation relating to undisclosed income. It first became very apparent that the Government is serious to follow through on its commitment to taxing foreign income, after recently KRA filed a landmark case locally.

The taxman is demanding Sh3.4 billion from Zuku’s parent company Wananchi Group. The tax demand originates from Wananchi subsidiaries; Wananchi Group Holdings Limited, Wananchi Programming Limited, Wananchi Group Satellite Limited registered in Mauritius. The tax authority argues that as much as these firms are registered elsewhere, they are managed in Kenya, which for all purposes makes them Kenyan.

As the year ends, and the period of the amnesty gets into its half-length, the amount of income so far declared by these wealthy lot stashed in overseas accounts, and the number of individuals who have declared it so far remains unknown.

tax havens

When contacted, KRA top leadership remained tight-lipped on the matter. The tax amnesty is a timely development in light of Kenya having agreed to participate in the Common Reporting Standards (CRS) regime. CRS is a global initiative developed by the Organisation for Economic Co-operation and Development (OECD) to enhance tax transparency and compliance across more than 47 countries including tax havens such as British Virgin Islands, Mauritius and Jersey.

In essence, the Government aims to encourage compliance and tax transparency locally through the amnesty. The money that such an amnesty can attract into the country can go far in boosting coffers.

Mbiki Kamanjiri, a manager at tax advisory firm Grant Thornton says a country like Singapore attracted $10 billion (Sh1.018 trillion) in four months after it announced the amnesty. Mr Kamanjiri asserts that the reason for the amnesty is not only to attract returns, but also to identify tax evaders.

“I would say that the most important benefit especially for KRA is being able to map tax evaders. For example, when a similar amnesty was announced for rental income, KRA was able to map landlords and enforce taxation on them,” Kamanjiri says.

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