The-Accountant-Jul-Aug-2017

Business practice and development
gaps in a taxpayer’s operations.
The key advantage of self-disclosure is that a
taxpayer is able to negotiate with the KRA for
a favourable payment plan. Also, self-disclosure
gives a taxpayer a better chance of negotiating
for a waiver of any accrued penalties and interest.
We have taxpayers who have managed to get
waivers upwards of 50% of the accrued penalties
and interest.
While the Kenyan Tax Procedures Act
provides for imprisonment terms for instances of
non-compliance, rarely do tax offenders undergo
a criminal investigation and prosecution, even
though the Attorney General has gazetted
special economic crime prosecutors.
Globally The Organisation for Economic Cooperation
and Development (OECD) is at the
forefront of advocating for tax transparency.
In pursuit of this, the OECD has developed
the Multilateral Convention on Mutual
Administrative Assistance in Tax Matters
(MCMAA or the Convention) which aims
to facilitate international cooperation and
information sharing among its signatories in a
bid to combat tax evasion and avoidance which
is aided by financial secrecy.
The MCMAA requires revenue authorities
to obtain information on the economic
activities of non-resident persons from their
financial institutions such as banks, mutual
funds, custodial institutions and stock brokers,
and share the information with other revenue
authorities whose countries are signatories to the
convention. Under the MCMAA, the Common
Reporting Standards (CRS), which came into
effect on 1 January 2017, were developed to
create a framework for the sharing of taxrelevant
information among jurisdictions.
Kenya became a signatory to the Convention
on 8 February 2016 and is expected to commence
information sharing with other signatories in
2018. Kenya is also a part of the Global forum
on transparency and exchange of information
for tax purposes and has been rated to be ‘largely
compliant’ with regard to the transparency
initiatives.
In view of the anticipated exchange of
information and to facilitate a transition to a
tax transparency and compliance status, Kenya
recently introduced a tax amnesty program
through an amendment to the Tax Procedures
Act. The tax amnesty bars the KRA from levying
taxes, penalties and interest on foreign income
earned prior to December 31, 2016, that is
voluntarily declared under the amnesty. However,
in order to qualify for the amnesty, taxpayers will
be required to repatriate their foreign held assets.
This tax amnesty is only available to taxpayers
whose offshore income has not been under
KRA‘s investigation or audit. The deadline for
the disclosure period is 30th June 2018.
The amnesty is however still clouded in
doubt as its aim is to have all foreign earned
income declared in Kenya. The problem with
this is that Kenya operates a source-based tax
regime and therefore not all foreign earned
income is taxable in Kenya. Further, with Kenya
not having foreign exchange controls in place,
the forced repatriation of funds may be a moot
point especially since an investor could easily
repatriate cash today as required to comply with
the amnesty requirements and tomorrow, he reinvests
the same cash abroad.
While the amnesty provisions do not
absolve taxpayers of any criminal liability,
KRA has in various fora reiterated that the
information declared under the amnesty shall
be maintained in confidence and shall not be
disclosed to other government agencies. That
way, KRA “guarantees” that there will be no
criminal prosecution in respect of the previously
undeclared foreign income now declared. As
always, the devil is in the detail and how this
works out in practice, only time will tell.
For now, Kenyan residents with foreign
income that is taxable in Kenya should consider
taking steps to regularize their tax affairs in Kenya
under the tax amnesty on or before 30 June 2018.
However, for others who have foreign held assets
but the income is not taxable in Kenya, they may
have to wait for the next amnesty guidelines in
order to assess how best to proceed.
Toddy, Caleb and Sharon are Tax practitioners
with KPMG Advisory Services Limited. The
views expressed herein are personal and do not
necessarily represent the views and opinion of
KPMG.
Kenya became a signatory to the Convention on 8 February 2016 and
is expected to commence information sharing with other signatories
in 2018. Kenya is also a part of the Global forum on transparency and
exchange of information for tax purposes and has been rated to be
‘largely compliant’ with regard to the transparency initiatives.
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