Kenya grants tax amnesty on foreign income

Kenya has introduced an Amnesty provision in the Finance Act 2016, allowing Kenyans earning taxable income from foreign sources to declare their foreign income for any year ending on or before December 31, 2016, without penalties. This move is aimed at encouraging taxpayers to come clean about their foreign earnings and ensure compliance with tax regulations. The implications of this Amnesty provision extend to both individuals and companies operating in Kenya but deriving income from overseas. To shed light on the impact of this crackdown on foreign income, Biki Kimangiri, Advisory Manager at Grant Thornton, shared insights with CNBC Africa. The tax authorities in Kenya have been scrutinizing foreign companies, especially those with subsidiaries registered in offshore locations. One such case involves a subsidiary in Mauritius, which is under the radar for allegedly evading taxes on income generated from operations managed in Kenya. While the legal proceedings are ongoing, the outcome of this case could set a precedent for similar companies flouting tax obligations by exploiting jurisdictional loopholes. The Amnesty provision not only targets companies but also individuals with foreign income streams. It requires taxpayers to disclose income originating from offshore sources, subjecting them to Kenyan tax rates. This move seeks to address ambiguity surrounding foreign income declaration and ensure that all earnings, irrespective of the source, are rightfully taxed in Kenya at the prevailing rate of 37.5%. However, interpreting the Amnesty provision raises questions about the scope of income covered. The Finance Act 2016 specifically mentions income from foreign sources but leaves room for interpretation on the inclusion of assets located abroad. This distinction is crucial for taxpayers seeking to regularize their offshore holdings and avoid penalties. A significant concern stemming from the crackdown on foreign income is the potential for double taxation. With Kenya having limited bilateral agreements to prevent double taxation, taxpayers could face multiple tax liabilities on the same income in the absence of such agreements. The absence of comprehensive double taxation treaties could deter foreign investment inflows and complicate tax compliance for multinational entities operating in Kenya. The challenge of addressing double taxation requires urgent attention from policymakers to facilitate a conducive tax environment for businesses and individuals. While Kenya strives to attract foreign investment and boost economic growth, ensuring fair and transparent tax practices is essential to maintain investor confidence and uphold financial integrity. In conclusion, the tax Amnesty on foreign income underscores Kenya's commitment to enhancing tax compliance and combating tax evasion. By incentivizing taxpayers to declare their offshore income voluntarily, the government aims to broaden the tax base and strengthen revenue generation. However, the complexity of international tax laws and the need for robust tax treaties emphasize the importance of aligning tax policies with global standards to foster sustainable economic development.