Why Henry Rotich's tax amnesty seeks to cleanse graft cash

Treasury CS Henry Rotich moments before 2018/19 budget presentation (PHOTO: FILE)

NAIROBI, KENYA: Kenya has been hit with various graft scandals in the recent past that have left citizens baffled and resigned to a fate that the wealthy and powerful can steal from the nation’s coffers unabated.

From the latest assertions by the Auditor General Edward Ouko that as much as Sh8 billion could have been lost through the National Youth Service (NYS) scam to barons selling harmful contraband sugar - raking in billions of shillings - ill-acquired wealth has rapidly become a part of the national psyche.

Though acquiring affluence through corruption should be frowned upon, the State has devised an ingenious way to have this cash reinvested in the economy.

But it also seeks to lure genuine traders who have cash abroad to bring their wealth back home.

The introduction of a controversial tax amnesty for Kenyans holding money in overseas bank accounts, through an amendment to the Tax Procedures Act in the Finance Act 2016, was at first taken with a pinch of salt by experts who wondered what Treasury’s real intentions were.

This is despite Kenya being a member of the Organisation for Economic Co-operation and Development (OECD).

OECD has developed the Common Reporting Standard - an information standard for the automatic exchange of tax and financial information at a global level – and Treasury would have easily taken advantage of this regime and nabbed the tax-cheats. The amnesty was supposed to expire on June 30 last year, before it was extended for another year. Perplexingly, Treasury has extended it yet again.

CS Rotich attributed the amnesty extension to its slow uptake. “In 2016, the Tax Procedures Act was amended to provide a tax amnesty on income declared for the year 2016 by a person who earned taxable income outside Kenya.

In 2017, I extended the period from December 30, 2017 to June 30, 2018 for the year of income 2016,” he said during his budget speech recently.

“However, despite the extension, the uptake of amnesty has been low partly due to concerns that when the monies are returned, questions will be raised regarding the source as required by Financial Reporting Centre.

“In this regard, and in order to encourage the uptake of the amnesty, I propose to extend the period of amnesty from June 30, 2018 to June 30, 2019 and the year of income declaration to be 2017.”

But experts point out, the amnesty is a platform for typical sugar barons or NYS fraudsters to launder money.

All one needs to do is to bank the ill-acquired money in an account abroad, say a tax haven like Mauritius, the Virgin Islands or Jersey then return it under amnesty without questions asked.

Kunal Ajmera, a partner at tax and audit firm Grant Thornton says the amnesty leaves room for abuse.

“By barring prosecution under the Proceeds of Crime and Anti-Money Laundering Act, would-be offenders can now take advantage of this window. However, one may argue that the proposed amendment would be empty in its enforceability,” he said.

Mr Ajmera said restricting provision is to be made in the Tax Procedures Act and not the Proceeds of Crime and Anti Money Laundering Act. This is also not the only Act that provides powers to prosecute economic crimes. He reckons that the Tax Procedures Act cannot purport to govern other Acts.

Amnesty extension

“In its preamble, it defines its objects and purpose as the provision of administrative efficiency and consistency in tax matters and facilitation of compliance by taxpayers. This scope cannot be extended to prosecutor powers under other Acts,” he added.

Treasury says amnesty extension is attributed to low uptake last year. But as Ajmera explains, there were concerns over what other scrutiny those who repatriate the cash will be subject to. This is because the amnesty only barred the Commissioner for Domestic Taxes from further querying the source of the income.

However, it lacks clarity as to whether the same exemption would be applicable to the Ethics and Anti-Corruption Commission and further prosecution under the Proceeds of Crime and Anti-Money Laundering Act.

“To this end, in his extension of the filing period to June 2019, the CS Treasury also extended the amnesty from prosecution to cover all these other bodies. The only exception to this would be proceeds from poaching, terrorism and drug trafficking,” Ajmera said. This has seen observers question how much money is stashed outside the country that is making Treasury have sleepless nights trying to see its repatriation.

A top banker at an Asian-owned lender revealed to this writer that Kenyans have stashed huge cash in overseas tax havens that Treasury is eyeing.

“My own bank has a branch in a famous tax haven that wealthy Kenyans use to stash cash. At that branch, there is Sh3 billion held by Kenyan account holders who were waiting for clarification that the money will not be subject to scrutiny by judicial bodies. They have now started to bring it in following Rotich’s assurance,” said the banker who cannot be named for his own professional protection.

An analysis by Grant Thornton indicates that the money runs into hundreds of billions of shillings.

Institute of Certified Public Accountants of Kenya Chairman Julius Mwatu says Treasury could be having noble intentions in holding on to the amnesty.

“I wouldn’t read much into it. I think the Government genuinely intends to attract capital flight back through the amnesty. The low uptake was perhaps as a result of the political tensions last year,” he said.