Kenyans hiding their wealth in commercial banks in the United Arab Emirates (UAE) will be exposed by January 1.
A decision has been made to lift the veil of secrecy on undeclared wealth in the UAE, which includes the emirates of Dubai, Abu Dhabi and Sharjah, as part of a global push to fight tax evasion.
The Organization for Economic Co-operation and Development (OECD) is leading the push to end financial secrecy, which has promoted corruption while helping businesses dodge paying taxes.
Already, Kenya has extended an incentive to individuals who have stashed money abroad to return it home tax free, with no questions asked about the source.
It is, however, difficult to tell just how much money Kenyans hold in banks in the UAE’s seven emirates, but it would be significant considering the annual trade volume of up to Sh200 billion.
“These local laws will mean that from the beginning of January 2017, governments will start requiring all banks and other financial institutions to ask customers for information with a view to determining where they are resident for tax purposes,” HSBC told customers.
HSBC is among the biggest banks in the world that offers private banking, a platform that assures clients of secrecy and protection from investigating authorities.
The executive director of Tax Justice Network-Africa, Alvin Mosioma, said the prospective publicising of banking information is a significant step towards enhancing financial transparency and tackling graft.
“It is a major development in the fight against tax evasion,” he said, adding that more countries around the world are expected to follow the measures adopted by the UAE.
Less than a fifth of the people living and working in the oil-rich country are citizens, with at least 40,000 of the eight million expatriates being Kenyan.
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The UAE is a major region for international trade and a top destination for wealthy individuals due to its strategic location to Africa and highly friendly tax laws.
Most petroleum products and machinery imported into Kenya are sourced from the UAE, official records show, presenting the perfect opportunity for traders to determine their tax residence.
In a typical example, the collapsed Naivasha-based Karuturi flower producer was found to be selling its roses in Europe through a sister company in Dubai – even though the commodities were flown directly from Nairobi to the market.
In the arrangement, it was made to appear as though the Kenyan firm sold the flowers at a deep discount to the Dubai company, which would later re-sell them at a much higher price to a third wholesaler in the Netherlands. All the firms in the structure were owned by the same person, with the Dubai subsidiary making the highest profit.
Many taxes are non-existent in the UAE, compared to about 30 per cent payable on incomes among individuals and companies in Kenya, prompting the rich to falsely book most of their earnings as having been generated in the emirates.
Repatriation of the profits is, however, a complex affair, meaning that Kenyans with accumulated wealth in offshore jurisdictions, either from business or corruption, could take advantage of the amnesty before facing impending OECD-driven exposure.
The Government is well aware of the billions of shillings stashed in offshore jurisdictions, which informed the policy step to grant amnesty. Treasury Cabinet Secretary Henry Rotich directed the Kenya Revenue Authority to allow Kenyans who have wealth abroad to bring it home without being taxed.
Mr Rotich assured beneficiaries that the State would not question the sources of wealth in a blanket measure expected to encourage the repatriation of ill-gotten monies.
KRA has since reported that the tax amnesty will be granted to firms that are not currently under audit or investigation on undisclosed income.
“Any person under tax audit, investigation on a matter of non-disclosure of income, or an assessment has been issued to where tax interests and penalties are due does not qualify for the amnesty,” read KRA’s notice in part.
It is anticipated that individuals with offshore wealth will be falling over themselves to file for notice given that once the OECD guidelines are applied, their wealth may be subjected to tax claims.
However, investigating agencies, including the Ethics and Anti-Corruption Commission (EACC), Department of Public Prosecutions, Financial Reporting Centre, and the Asset Recovery Agency may not be bound by the amnesty, which means that they can be petitioned to investigate repatriated cash.
EACC deputy boss Michael Mubea said they will keep to their mandate but are open to negotiations with KRA on the matter.
“We will deal with what is in our mandate, but we will also have discussions with KRA as we have no information outside what is in the media,” Mr Mubea told Business Beat.
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KRA said it is developing guidelines that will address the grey areas tax specialists have raised, including whether the amnesty could be manipulated by tax cheats and money launderers especially as the country approaches an election year.
Kenya is emulating Singapore, which attracted Sh1.018 trillion in four months after it announced an amnesty.
In the US, President-elect Donald Trump has promised to gift fat-cats a tax holiday to bring back their money in his bid to boost infrastructure spending.