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TAX AMNESTY
FINANCE ACT 2016
Digitally signed by Baker
Tilly Merali’s
DN: cn=Baker Tilly
Merali’s, o=Baker Tilly
Merali’s CPA, ou,
email=reception@meralis
cpa.com, c=KE
PRESENTATION BY: MAHMUD P. MERALI , JIMMY MERALI & ANNROSE WANJIRU
9 November 2016
INTRODUCTION
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FINANCE ACT 2016
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TAXABLE FOREIGN INCOME
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SCENARIO ANALYSIS
19
FRAUD & WILFUL DEFAULT
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COMMON REPORTING STANDARDS
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REPATRIATION OF FUNDS
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TAX AMNESTY APPLICATION PROCESS
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BENEFITS OF TAX AMNESTY
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ABOUT BAKER TILLY MERALI’S
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2
INTRODUCTION
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DEFINE AMNESTY
“A pardon extended by the government to a group or class of persons, usually for
a political offense; the act of a sovereign power officially forgiving certain classes
of persons who are subject to trial but have not yet been convicted.”
WHAT IS TAX AMNESTY?
Tax amnesty is a free pass for a particular group of taxpayers to disclose
incomplete or unreported information about previous tax periods without having
to face prosecution by the tax court or pay any penalty.
They pay a special tax in exchange for a government pardon on their tax liability.
For this tax amnesty Commissioner shall refrain from assessing or recovering
taxes, penalties or interest in respect of any year of income ending on or before
the 31st December, 2016.
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AMNESTY ON RESIDENTIAL RENTAL INCOME – Finance Act 2015
• In 2012 KRA noted that only <40% of the landlords were tax compliant
• Landlords who took advantage of this opportunity got:
For 2013 and prior - 100% waiver on principal taxes, penalties and interest.
For 2014 and 2015 - 100% waiver on penalties and interest.
• The condition for tax amnesty qualification is the full declaration of the rental
income, online filing of the returns and payment of principal taxes for 2014 and
2015 immediately.
• The target by KRA was to bring on board about 20,000 new landlords who were
expected to pay at least Sh3 billion in revenue from taxes.
• By April 2016 only 1,000 landlords had taken up the amnesty.
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FINANCE ACT 2016
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FINANCE ACT 2016
• Every year the budget process in Kenya represents a Finance Act.
• The Finance Act provides legislative framework pertaining to:
 Taxes;
 Duties;
 Exemptions; and
 Reliefs for the fiscal year.
• The Finance Act for FY 2016/2017 was assented to on 20th September 2016.
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AMNESTY PROVISION
• The CS for Treasury cited that the main aim of the amnesty was to attract
Kenyan investors who have opted for offshore investments.
• It introduces an amendment to the Tax Procedures Act, 2015 (TPA).
• This amendment grants tax amnesty to Kenyan residents who earn taxable
income from foreign sources for the years up to 31 December 2016.
• The Amnesty allows Kenyan tax residents to declare their foreign income on
or before 31 December 2017 in respect of any year ending on or before 31
December 2016.
• The declaration will come into force on 1 January 2017.
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SECTION 37B OF THE TAX PROCEDURES ACT (TPA)
“…the Commissioner shall refrain from assessing or recovering taxes, penalties or
interest in respect of any year of income ending on or before the 31st December,
2016, and from following up on the sources of income under the amnesty where:
a) that income has been declared for the year 2016 by a person earning taxable
income outside Kenya; and
a) the returns and accounts for the year 2016 are submitted on or before the 31st
December, 2017:
Provided that this section shall not apply in respect of any tax where the person who
should have paid the tax:
i.
has been assessed in respect of the tax or any matter relating to the tax; or
ii. is under audit or investigation in respect of the undisclosed income or any
matter relating to the undisclosed income.”
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TAX AMNESTY
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TAX AMNESTY, KENYA
Taxpayers who take up the Amnesty need to consider:
• Whether they qualify for the Amnesty
• The nature of foreign income which is taxable in Kenya
• The Government policy behind the Amnesty
• The practical steps required to take advantage of the Amnesty in a manner
which is not prejudicial to the taxpayer
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TAXABLE FOREIGN INCOME
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SECTION 2 OF THE INCOME TAX ACT:
RESIDENT INDIVIDUAL IS DESCRIBED AS ONE WHO;
i.
has a permanent home in Kenya and was present in Kenya for any period in a
particular year of income under consideration; or
ii. has no permanent home in Kenya but:
a. was present in Kenya for a period or periods amounting in the aggregate to
183 days or more in that year of income; or
b. was present in Kenya in that year of income and in each of the two
preceding years of income for periods averaging more than 122 days in each
year of income
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BASIS OF TAXATION, KENYA
• “Source-based” system of taxation i.e. income which is ‘’accrued in or derived
from Kenya’’ is taxable in Kenya.
SECTION 3 (1) OF THE INCOME TAX ACT:
• “...income of a person, whether resident or non-resident, is chargeable to income
tax provided the income accrued in or was derived from Kenya.
• Therefore, income of a person cannot be subject to income tax unless it is income
which accrued in or was derived from Kenya.”
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SECTION 4 OF THE INCOME TAX ACT:
• “…where a business is carried on or exercised partly within and
partly outside Kenya by a resident person, the whole of the gains
or profits from that business shall be deemed to have accrued in or
to have been derived from Kenya.”
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Income from Employment, Section 5 of the ITA;
….an amount paid to
a. a person who is, or was at the time of the employment or when the
services were rendered, a resident person in respect of any employment or services
rendered by him in Kenya or outside Kenya; or
b. a non-resident person in respect of any employment with or services
rendered to an employer who is resident in Kenya or the permanent establishment in
Kenya of an employer who is not so resident,
shall be deemed to have accrued in or to have been derived from Kenya.
Foreign employment income which has not been declared under the tax returns,
would qualify for tax amnesty.
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FOREIGN INCOME SOURCES
Business income
• An example of foreign-sourced business income which may be taxable in Kenya
would be the profits of a foreign subsidiary/branch of a Kenyan company.
•A foreign company could be considered to be resident in Kenya if the management
and control of its affairs is exercised in Kenya and therefore be liable to Kenyan
taxes.
Investment income
• Foreign-sourced dividends/interest (for instance, dividends/interest paid by a
foreign subsidiary company to a Kenyan resident) may not be chargeable to tax in
Kenya.
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FOREIGN INCOME SOURCES
Employment income – Section 3(2)(a)(ii)
An amount paid to a person who is, or was at the time of the employment or when
the services were rendered, a resident person in respect of any employment or
services rendered by him in Kenya or outside Kenya… shall be deemed to have
accrued in or to have been derived from Kenya.
Pension income – Section 8(1) of ITA
Where a Kenyan earns pension income form a fund/scheme established outside
Kenya it shall be deemed to have accrued or be derived from Kenya to the extent to
which it relates to employment or services rendered by the individual, or the
husband or parent of the individual, in Kenya and the amount so derived shall be
the proportion of the total pension during the employment period in Kenya to the
total length in respect of which the pension is paid.
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SCENARIO ANALYSIS
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SCENARIO 1:
A Kenyan incorporated company which provides consultancy
services has a regional presence in Tanzania, Rwanda, Uganda and
South Sudan. It operates in this other jurisdictions through
subsidiaries and has been complying by paying taxes in each
country it has operations in. It has only being paying tax in Kenya
for income earned in Kenya.
Note: The Kenyan company has a business which is carried on
partly within and outside Kenya. Therefore the whole income
should be reported and taxed in Kenya (subject to any relief that
may be available in case of a double tax treaty). The taxpayer
would in this case benefit from the Amnesty.
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SCENARIO 2:
A Kenyan tax resident exports flowers to Europe. Most of the
income is paid to a Kenyan account and is fully taxed. Some of the
customers however pay him through an account he has in the UK
and this income is not taxed in Kenya.
Note: The foreign income held in a bank account in the UK was
derived from Kenya and the taxpayer has therefore breached his
obligations under the Income Tax Act. Given the income was
derived from Kenya it is liable to income tax in Kenya. The tax
payer in such a case will also benefit from the Amnesty.
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SCENARIO 3:
A Kenyan resident who had rental property in Kenya and sold the
property in Kenya in 2013 and invested the proceeds in shares,
rental property and fixed deposits in the UK. He has been receiving
rental income, dividends and interest income from his investment in
the UK.
Note: The income arising from his investment in the UK is not
income accrued or derived from Kenya and does not therefore
qualify to be taxed in Kenya. Royalty income from a foreign
jurisdiction is also not subject to tax. We therefore do not think the
taxpayer will need to rely on the tax amnesty.
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SCENARIO 4:
A Kenyan resident who resides in Kenya and has invested in property in Dubai, UAE
from which he is earning rental income.
Note: The rental income arising from his investment in Dubai, UAE is not income
accrued or derived from Kenya and does not therefore, in our view, qualify to be
taxed in Kenya.
SCENARIO 5:
A Kenyan resident who resides in Kenya and has invested in fixed deposit in Mauritius
from which he is earning interest income.
Note: The interest income arising from his investment in Mauritius is not income
accrued or derived from Kenya and does not therefore, in our view, qualify to be
taxed in Kenya.
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FRAUD AND WILFUL DEFAULT
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SECTION 97 OF THE TPA:
• Any person who, in relation to a tax period, knowingly—
a) omits from his or her return any amount which should have been included; or
b) claims any relief or refund to which he or she is not entitled; or
c) makes any incorrect statement which affects his or her liability to tax; or
d) prepares false books of account or other records relating to that other person
or falsifies any such books of account or other records; or
e) deliberately defaults on any obligation imposed under a tax law,
commits an offence.
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SECTION 104 (3) OF THE TPA - PENALTY FOR FRAUD:
A person convicted of an offence shall be liable to:
• a fine not exceeding KSh 10,000,000, or double the tax evaded,
whichever is higher
OR
• to imprisonment for a term not exceeding ten years, or to both.
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OPPORTUNITIES & THREATS
Consequences of declaring tax affairs leads to taxes, penalties and interest for years of
income ending on or before 31 December 2016 not assessed, going forward:
 The person conducts their tax affairs in a transparent manner such that the
requisite taxes are paid and no penalties or interest arises, or
 The person takes advantage of the amnesty but going forward does nothing to
clean up their tax affairs in which case potential tax liabilities, penalties and
interest arise only for years of income from 1 January 2017.
However, failure to take advantage of the opportunity may result in the CRS exposing:
 The undeclared foreign sourced income,
 Taxes, penalties and interest being imputed for all the years in question, both
before and after 31 December 2016.
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COMMON REPORTING
STANDARDS
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COMMON REPORTING STANDARDS (CRS)
• Developed by the ‘Organisation for Economic Cooperation & Development’
• 56 countries
• > 90 jurisdictions
• Enhances tax transparency and compliance
• Increased reporting requirements
• Easy information access relating to investments in foreign bank accounts
• ‘Automatic information exchange’
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EARLY ADOPTERS OF THE CRS
Note: These nations will exchange information on 30 June 2017,
information dating back to accounts existing 01 January 2016.
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SECOND WAVE
Note: These nations will exchange information on 30 June 2018,
information dating back to accounts existing 01 January 2017.
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UNCOMMITTED

Kenya has indicated it will participate in due course however, no date
has yet been announced.
It is understood that committing to CRS presents challenges for Kenya
as participation generally requires reciprocity (i.e. reporting is two
way) and Kenya does not have the reporting infrastructure in place to
meet its reciprocal obligations.
Note: These nations have yet to commit to a specific start date.
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ADOPTION OF CRS BY KENYA
The Kenya Revenue Authority (KRA) will be able to obtain information
in respect of Kenyan resident persons (individuals and corporates)
with overseas investments.
The information will be obtained through collaboration with financial
institutions in other CRS participating jurisdictions.
Persons under investigation will be required to explain their sources
of funds.
Thus, It is advisable for Kenyan resident persons with overseas
interests, to take advantage of the opportunity presented by the
Kenyan government and proceed to conduct their tax affairs in a
transparent manner.
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PANAMA PAPERS –
EXPOSURE FOR
INTERNATIONAL
CITIZENS
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PANAMA LEAKS - MOSSACK FONSECA & CO.
In early May 2016, a massive leak of documents from the Panamanian
law firm
Mossack Fonseca & Co. known as the Panama Papers showed
evidence of the firm creating hundreds of thousands of shell
companies and offshore accounts for clients worldwide.
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REPATRIATION OF FUNDS
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BRINGING BACK CASH STASHED ABROAD
Wealthy Kenyans who have cash stashed abroad will get a blanket amnesty to
repatriate the money tax-free, with no questions asked about the origin of the
money. The aim is to attract Kenyan investors who have opted for offshore
investments.
Currently, the Kenya Amnesty is not as detailed as it is in other countries such as
Indonesia and it would be helpful indeed if the KRA provides a detailed guideline
for the same.
The tax amnesty guidelines in Indonesia have set out guidelines and procedures
relating to the type of income which will benefit from the amnesty and include the
requirement for repatriation of funds. The repatriated funds need to remain in
Indonesia for at least 3 years.
A tax evasion amnesty in India has prompted tens of thousands of people to declare
more than $9.5bn in undeclared income and assets
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BRINGING BACK CASH STASHED ABROAD
A newly released report by New World Wealth says the high net worth individuals
in Kenya stash their money in foreign banks.
The report stated that about 50% of these high net worth individuals are elite with
political connections, and are estimated to have $ 10 billion banked abroad,
constituting 30% of national wealth, mostly in foreign private banks in UK,
Switzerland, Cyprus and Channel Islands.
Treasury Secretary Mr. Henry Rotich stated “The government is aware that there
are taxpayers who own assets and businesses outside the country and would be
willing to reinvest back home provided that there is a conducive environment to
facilitate such reinvestments. Consequently, I propose to declare tax amnesty for
such taxpayers provided that they submit their return and accounts for the year of
Income 2016, between 01 January 2017 and 31 December 2017.”
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BRINGING BACK CASH STASHED ABROAD
Several Kenyans have also been named in a list of businessmen from around the
world with assets and businesses in Panama which has emerged as one of the
largest tax havens.
Thus, Kenyan resident persons with undeclared foreign income are urged to give
serious consideration to the proposed tax amnesty.
The voluntary declaration would also mean that persons will be able to freely use
the declared income for making investments in Kenya, as the Commissioner is
restrained from investigating the sources of income, under the proposed provision.
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TAX AMNESTY APPLICATION PROCESS
Note: Those seeking amnesty will have to submit their return and statement of accounts
for the year 2016 by 31 December 2017.
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BENEFITS OF THE TAX AMNESTY
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ABOUT BAKER TILLY MERALIS
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WHO WE ARE?
Baker Tilly Merali’s is an international Certified Public Accountants firm of
professionals offering assurance, taxation, advisory services and consulting
established in 1983 in Nairobi, Kenya.
In 1978, our head office was first established in London by Mahmud Merali to
provide international accountancy, auditing and consultancy services to UK based
clients as well as MENA region.
It has other offices in Mogadishu, Kampala and Kigali. The local firm is able to draw
from its head office and branch additional resources to complement its in- house
expertise.
We are proud to be a member of Baker Tilly International which has offices in 141
countries and was recently awarded the 2016 Prize for Best Accountancy Network.
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OUR SERVICES
• Auditing
• Advisory
• Taxation
• Consultancy
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OUR PEOPLE
Our people are our greatest asset – helping us to stand out from the
crowd. There are nearly 200 colleagues working at MERALI’S
globally, from graduates to highly experienced Managers and
Partners.
With a professional yet individualistic approach, the work ethic at
MERALI’S is that of hard work, honesty and trust. Confidentiality of
client information remains one of our key pillars.
We have done this and more initiatives to come to celebrate our 1
year anniversary of our growing tax department and to interact
better with our clients.
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OUR STRATEGY
Our firm bases its audit approach on dominant business value
creation logic.
Our partners and senior staff ensure that our approach leads to value
being generated to the contracting organization such that great
emphasis is placed on implementation and creation of an action plan.
Dominant
Business
Logic
Identificatio
n
Value
Creation
Financial
Logic
Implementatio
n
Action
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DISCLAIMER
This document is confidential and prepared solely for your
information. Therefore you should not, without our prior written
consent, refer to or use our name or this document for any other
purpose, or make them available or communicate them to any other
party. No other party is entitled to rely on our document for any
purpose whatsoever and thus we accept no liability to any other
party who is shown or gains access to this document.
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CONTACT US
Contact
details:
Head Office: New Rehema House
Rhapta Road, Westlands
P O Box 67486, 00200
Nairobi.
Tel: +254-20 4442714/5, +254-20 4441383/84
E-mail
address:
Website:
+254-20 4442706 fax
[email protected]
http://www.bakertillymeralis.co.ke
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THANK YOU
QUESTIONS AND FEEDBACK
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