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KRA rules on amnesty to tax dodgers unclear, say experts

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Times Tower, the headquarters of the KRA, in Nairobi. FILE PHOTO | NMG

Tax amnesty guidelines issued by the Kenya Revenue Authority (KRA) early this month have failed to provide clarity and the taxman needs to go back to the drawing board.

Tax partners at Anjarwalla & Khanna advocates in a legal note say if the taxman and the government are committed to seeking wide tax compliance they should take into account the experience of other countries on such matters and consider the legal provisions.

“Tax amnesties have been successfully implemented in many countries, but in each case the law has been detailed and exhausted granting clear rights and creating clear obligation on both the taxpayer and the taxation authority,” said the tax partners.

Under the new guidelines, KRA opened a new window for tax dodgers who have hidden wealth abroad to safely bring back home such assets under fresh tax amnesty rules that kicked in last January.

Treasury secretary Henry Rotich announced the tax amnesty offer in his Budget speech June last year. The Finance Act provided for the tax pardon for income earned up to December 31, 2016.

The tax partners said a condition relating to physical repatriation of assets like real estate and other immovable possessions will require the assets to be sold with the sale proceeds being repatriated to Kenya.

They, however, noted that there is no timeline provided to comply with this requirement, although presumably since it is a requirement under the guidelines, it ought to be complied with prior to December 31, 2017 when the amnesty expires.

Another vague mandatory requirement for the amnesty is the full and accurate disclosure of income and assets.

They say this provision could present serious challenges, as it is contemplated that grant of the amnesty is not automatic and is at the discretion of the KRA.

Income earned outside Kenya is not taxable under Kenya’s laws except where it relates to business income – partly earned in the country and outside the country, or where it relates to employment income.

In the case of an irrevocable discretionary trust, a Kenyan taxpayer will not have a fixed interest in the trust and therefore it is unclear on what basis the taxpayer or trustee can repatriate trust assets which are not identifiable in the name of the taxpayer.

Further, the tax experts said foreign trusts will be subject to the laws of the jurisdictions in which they are established and a trustee’s legal duties would be guided by the laws of the relevant jurisdiction.