Tax Amnesty – The last minute rush
The Kenyan government through the Finance Act 2016 introduced a tax amnesty program targeting all taxes, penalties and interest for tax taxpayers with foreign earned taxable income for the periods before 31st December 2016.
While there has been a lot of debate on the kind of income that KRA is targeting, the window to declare the foreign income in order to qualify for the amnesty is fast closing. The deadline which is June 30th 2018 was an extension of the earlier deadline of 31st December 2017.
The typical Kenyan culture of last minute will once again rear its head as the deadline looms. As the rush begins, here are the things to note while preparing for the declaration.
The tax amnesty guidelines provide that income that is earned through foreign investments including employment income should be declared. Many pundits are conflicted as to what relates to this foreign income. Kenya operates a source based tax system where the income that is subject to tax in Kenya is that which is either derived in Kenya or partly in Kenya and outside Kenya. This is the target of the amnesty.
Therefore Kenyan residents with foreign income derived through activities in Kenya or partly in Kenya and outside the country need to take advantage of the amnesty and declare this income. For those with income derived from foreign sources and do not meet the tax residency threshold, they need not declare that income but should they wish to declare, this will be purely voluntary as there is no law that requires them to be taxed in Kenya.
To take advantage of the amnesty one needs to apply online through i-Tax. The online A/37B form has now been enhanced to include declaration of liabilities that are associated with the foreign assets. This had been one of the issues raised when the form was initially deployed. While the form is straightforward in filling, it is wise to check with your tax consultants so as to aptly capture the essence of the declarations hence avoiding unnecessary liabilities in future due to erroneous entries.
The granting of the amnesty is pegged on the taxpayer repatriating the assets that are abroad. The KRA has clarified that the assets to be repatriated should be in cash form and hence there is no need to liquidate the physical assets that are abroad but they should be clearly declared in the form. For the form to be submitted the tax payer needs to upload proof that the repatriated cash has been transferred to Kenya. A bank transfer documentation is adequate for this. The repatriated cash can then be re-invested in Kenya.
One of the loopholes in this amnesty program is the weak foreign transaction controls in Kenya. The repatriated cash can be immediately reinvested abroad legally hence beating the original purpose of the amnesty which is to spur economic growth in the country.
One of the issues of concern is the use of the information that will be provided by the tax payers seeking amnesty. While the granting of the amnesty is not automatic, KRA has assured the tax payers that the information received will not be used against them nor shared with other government agencies. However, KRA put a slight rider that this will only apply if the activities that the tax payer is involved in are legal. Further, the law mandates KRA to share any information on any tax payer with other agencies should there be any investigation on their affairs.
Once the amnesty is over what next? Tax payers should note that the main objective of the amnesty is information gathering. Kenya was the 94th jurisdiction to sign the multilateral convention on mutual administrative assistance in tax matters in Paris in 2016. This is an initiative of the Organization for Economic Co-operation and Development (OECD). The OECD is an international body of countries that seek to enhance international trade and seek solutions to common challenges in the undertaking of international trade. Kenya’s signature to this convention forms the basis for sharing tax information with other jurisdictions as well as Kenya receiving information on Kenyan tax payers from other tax jurisdictions. This will be fully implemented when Kenya signs the Common Reporting Standards which is the formal tool for this information sharing.
Partakers of the amnesty will be relieved if the jurisdictions where they have assets share their information with KRA, they would be a head of the game. However, the tax amnesty is for the period before 31st December 2016. This means that going forward, the tax payers that have participated in the program whether granted or not should pay the tax due from the declarations.
The KRA is expected to issue an acknowledgement of the filing for the amnesty and a formal communication that the amnesty has been granted. We expect this kind of communications and seeking of clarity from the tax payers after the deadline lapses.
By Nathan Omayio
Nathan is a Senior Tax Consultant at Andersen Tax, Kenya.