Tax Amnesty Policy To Impact Kenyan Foreign Income – Analysts

Kenya’s 2016/2017 budget themed, ‘Consolidating gains for a prosperous Kenya’ granted a tax amnesty to taxpayers who own assets and businesses in other jurisdictions and who intend to reinvest the same in Kenya.

This was one measure aimed at improving revenue collection, broadening the tax base, enhancing equity and fairness in the tax system.

The Finance Act 2016 introduced a provision in the Tax Procedures Act granting tax amnesty to to the tax payers who earn taxable income from foreign sources. The Amnesty gives the right to tax payers to declare their foreign income in respect of any year ending on or before 31 December 2016.

As the deadline for tax amnesty fast approaches, Grant Thornton assesses the importance of declaring foreign assets in Kenya and what it means going forward.

Grant Thornton says, “The 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 OECD to enhance tax transparency and compliance across more than 47 countries including tax havens such as British Virgin Islands, Mauritius and Jersey.”

Grant Thornton Kenya  Financial Analysts analyses effects and implications of tax amnesty on Kenyan tax payers as the amnesty deadline fast approaches.

Why does Kenya want to start taxing foreign income?

Mbiki Kamanjiri, Manager, Advisory at Grant Thornton Kenya explains the importance of Base Erosion Profit Sharing (BEPS) and how it relates to tax amnesty.

BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.

Mbiki emphasizes that, “Regulations on business taxation are clear. Profit must be taxed where the bulk of the work is undertaken; and not through jurisdictions where ‘briefcase’ companies are held”.

Tax amnesty will affect all taxpayers (businesses and individuals) who own assets and businesses outside of Kenya. The revenue authority is, however, refrained from assessing or recovering taxes, penalties or interest in respect of any year of income ending on or before December 31st, 2016. The commissioner is also refrained from following up on the sources of income under the amnesty.

What incomes are covered under the amnesty?

Foreign income that is taxable in Kenya but has not been declared locally.

And how does one comply?

The amnesty will apply to tax payers who declare earnings from their foreign incomes voluntarily and file their returns by December 31^st, 2017 for the years ending December 2016.

Are there penalties for declaration?

As emphasized by Samuel Mwaura, Tax Director “Under the tax procedure act 2016, any officer inspecting a companies’ books is clearly instructed not to disclose any foreign income indicated”.

It is important to note that there are cases whereby the amnesty will not apply to a tax:

• The tax payer is under audit or investigation relating to undisclosed income
• The tax payer has been assessed in respect of the tax or any matter relating to the tax

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