Since June 2016, when Kenya’s Cabinet Secretary for Finance announced that the Government would extend a tax amnesty on foreign income in the annual budget speech, there has been anticipation around the proposed amnesty. Anticipation for the Government to release the related Guidelines, which the Kenya Revenue Authority (KRA) recently did earlier this month. The Tax Amnesty Guidelines on Foreign Incomes (the Guidelines) are intended to provide guidance as to how to take advantage of the amnesty. Under it taxpayers will get a wide blanket of amnesty on foreign income and assets, provided they were disclosed and repatriated. In the Cabinet Secretary’s words, “...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...”
However, the scope of the amnesty as contained in the enacted Finance Act, 2016 which introduced Section 37B to the Tax Procedures Act, 2015 did not track the Cabinet Secretary’s words during the 2016 budget speech, “... the Commissioner shall refrain from assessing or recovering taxes, penalties or interest in respect of any year of income ending on or before the 31st December, 2016, and from following up on the sources of income under the amnesty where — (a) that income has been declared for the year 2016 by a person earning taxable income outside Kenya; and (b) the returns and accounts for the year 2016 are submitted on or before the 31st December, 2017..." The amnesty under Section 37B is limited, applying to a fairly narrow set of incomes, without any requirement for repatriation.
Under the Guidelines, income is defined as, “..taxable income earned outsider Kenya which would have been taxable in Kenya under Kenyan tax laws if it had been accrued or derived in Kenya or deemed to have been accrued in or derived in Kenya...” In effect the scope of the tax amnesty has been widened to now apply to all forms of income earned abroad that would have been taxable had they been earned in Kenya. The breadth of this widening is reinforced by definition of assets under the Guidelines which includes ,”.....bank deposits, investment portfolio, insurance policies, shares or other property situated outside Kenya and are funded from income derived from or accruing from sources within or outside Kenya including those held under Trust...”
The amnesty also extends to, taxable income earned by the person seeking amnesty from sources outside Kenya; taxable income by a person who resident during the year it was earned, regardless of the present status as well as non-residents,... “in the year in which he earned taxable income outside Kenya and such income would have been taxable under Kenyan tax laws if it had been accrued or derived in Kenya or deemed to have been accrued or derived in Kenya.” Plainly, the issue of the scope of the income covered by the amnesty will require more investigation, reflection and possible litigation not only as to what practical effect of these provisions are, but their legal propriety.
The Guidelines not only require full and accurate disclosure but also, in line with Budget speech, but unlike section 37B, to qualify for the amnesty, those disclosed assets must be repatriated to Kenya.
Other highlights of the Guidelines include:
- Application must be made by 31st December, 2017 using the prescribed format
- Stipulations to as who makes the declaration e.g. in the case of trusts, trustees, or settlors; joint declarations permissible by husbands and wives; parents or guardians in case of minors
- Incomes excluded such as those earned in Kenya; those earned outside Kenya but were declared and already taxed; the applicant is under a tax audit or investigations by the KRA
KRA has undertaken to work with all stakeholders so as to ensure the tax amnesty scheme is a success. This is a promise that all those who might wish to apply for the amnesty as well as their tax and/or legal advisers should take for there are only nine months left.
The Kenyan Government is clearly gearing up for the OECD Common Reporting Standards (CRS) which are expected to come into force in Kenya in the year 2018, latest 2019. The Government has now put on notice all tax payers with foreign assets to put their affairs in order before the CRS takes effect.
If you have any queries or need any clarifications, please do not hesitate to contact Walter Amoko or Lena Onchwari or your usual contacts at our firm, for advice relating to the Amnesty and how it may affect your business and dealings, going forward. For more information on the CRS, read one of our earlier insights here and for a summary of the 2016 budget by our tax experts, click here