TAX AMNESTY GUIDELINES

Monday, March 20, 2017
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The Kenya Revenue Authority (the KRA) on 08 March 2017 issued draft Foreign Income and Assets Tax Amnesty Guidelines 2017 (the Draft Guidelines) for consultation with stakeholders. The KRA subsequently held a Stakeholders forum on 14 March 2017 to discuss the draft guidelines (the Stakeholders Forum).

The rationale for the tax amnesty is to encourage the repatriation to Kenya of offshore assets so as to stimulate economic development in Kenya and to enhance disclosure of information and compliance ahead of the coming into force and subsequent enforcement of the Organization for Economic Cooperation and Development (OECD) Common Reporting Standards (CRS) in Kenya. The CRS provide for automatic exchange of tax information relating to taxpayers, at a revenue authority level, between various countries.

Whilst the guidelines are a welcome move and are intended to provide clarity on the application of section 37B of the Kenyan Tax Procedures Act (the section providing for the amnesty), the language of the Draft Guidelines does not properly capture this intention. The Draft Guidelines also raise a number of other issues that require to be addressed for the tax amnesty to achieve its intended purpose. The key issues are; 

•  the Draft Guidelines may not have the force of law since section 37B does   not provide for the issue of guidelines thereunder and there is no general power under Kenyan tax laws for the issue by KRA of guidelines;

•  the income subject to the tax amnesty is not entirely clear since Kenya’s tax system is source based, that is, Kenya generally taxes income accrued in or derived from Kenya;

•  the KRA’s interpretation of the tax amnesty as stated at the Stakeholders Forum and the intention of the tax amnesty is to effectively grant amnesty to income earned in Kenya which was repatriated offshore since KRA will not follow up on the sources of the income declared for the purposes of the tax amnesty. However, this interpretation is not supported by Section 37B or the guidelines and is thus fraught with risk particularly since the Draft Guidelines provide that the tax amnesty is not to apply to income earned in Kenya;

•  the Draft Guidelines require physical repatriation of the relevant assets so as to benefit from the tax amnesty, a requirement which is not embodied in section 37B of the Tax Procedures Act. This has raised serious concerns with stakeholders;
 
•  the Draft Guidelines seem to require approval of the amnesty application by the KRA before it is granted. This raises the risk that any such declared income deemed not to meet the tax amnesty requirements may be flagged and brought into the tax net; and

•  the tax amnesty only relates to tax and does not protect one from prosecution for other wrong-doings under Kenyan laws.

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In the meantime, we recommend that persons seeking to utilize the tax amnesty provisions to adopt a wait and see approach pending further guidance from the KRA.

If you need further assistance please contact Paras Shah Partner and Head of M & A and Projects or Alex Mathini Partner Corporate Commercial.