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US tax cuts seen raising amount of money sent back to Kenya

The US diaspora accounts for more than half of the remittances sent to Kenya,
The US diaspora accounts for more than half of the remittances sent to Kenya. FILE PHOTO | AFP 

Wide-ranging tax cuts in the US could positively impact the amount of money that Kenyans living in the country send home, the Capital Markets Authority (CMA) says in a new report on financial markets.

The US diaspora accounts for more than half of the remittances sent to Kenya, with those in formal employment or running businesses set to be among millions who will benefit from lower taxes signed into law in December by President Donald Trump.

In the 11 months to November 2017, the US diaspora sent home Sh90 billion, out of total remittances of Sh177 billion.

“As at November 2017, remittances from North America accounted for about 55.85 per cent of total remittance inflow to the country, accounting for the greatest percentage of the flows,” says the CMA in its fourth quarter 2017 Market Soundness Report.

'Important resource'

“The diaspora community in the US remains an important resource for the growth of the country’s GDP and the new tax rates could have a direct impact on the level of remittances the country will receive in coming months.”

Wages and dividends are already rising in the US.

Such growth would also bode well for the shilling, which is stabilised when the country receives healthy forex inflows.

The changes will see the maximum US corporate tax rate come down to 21 per cent from 35 per cent, while the top individual tax rate falls to 37 per cent from 39.6 per cent.

ABC Capital corporate finance manager Johnson Nderi, however, said benefits of the lower taxes translating into higher remittances is presumptive since Kenyans in the US may as well choose to consume the higher disposable income rather than send it back home.

Opportunity

“It is true that it gives them the opportunity to send more money home, especially for those with projects back here. However, they could also decide to consume the extra money. It is something that is not easy to predict,” said Mr Nderi.

Remittances have grown in recent years to become the top source of foreign exchange for Kenya ahead of traditional sources of forex like tea, horticulture and tourism.

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