Need for clarity on tax amnesty

Monday October 07 2019

The Kenya Revenue Authority is struggling to widen its revenue base. ILLUSTRATION | NATION MEDIA GROUP


Tax amnesty in Kenya was introduced vide the Finance Act 2016 to ensure repatriation of funds held abroad to the country so as to bridge budget deficits and spur economic growth.

One would apply under Section 37(B) of the Tax Procedures Act 2015 and repatriate their foreign-held assets within the amnesty period.

This has been applied in many other jurisdictions — including in South Africa, France, India, Brazil Italy and Australia.

A 2009 tax amnesty in Italy which subjected repatriated assets to a flat tax of five per cent saw €80 billion (Sh9 trillion) in assets declared, resulting in tax revenues of €4 billion.

The Bank of Italy estimated that Italian citizens held €500 billion in undeclared funds outside the country, giving a success rate of roughly 16 per cent.

There are macroeconomic benefits such as repatriating flight capital, balance of payments and boost in domestic investments that go beyond increase in revenue and compliance in various tax amnesty programmes, which have the potential to increase tax revenues in the short term at reduced cost — that is, fewer audits, litigation and criminal proceedings.



On the flipside, tax amnesty and asset repatriation programmes have tended to have huge costs to the economy and financial system.

But there are inherent weaknesses in the programme, as identified by the Financial Action Task Force (FATF). They include the risk of increase in money laundering and terrorist financing; the perception that it is legitimising the source of those funds and assets being targeted by authorities, and the reduction in incentives to pay taxes routinely.

If well implemented, the citizens may expect periodic tax amnesties and asset repatriation programmes by the government, potentially increasing tax evasion.

The Institute of Certified Public Accountants of Kenya (ICPAK) carried out a study to assess the uptake and impact of the tax amnesty issued in Kenya between December 31, 2016 and June 30, 2018 and extended to June 30, 2019 vide the Finance Act 2018.

Not having remitted the funds within the amnesty period was allowed but five years of no remittances would attract a penalty of 10 per cent on the amount.


As at the time of the study and end of the amnesty period, there were 3,523 applications processed by Kenya Revenue Authority (KRA) worth Sh118.8 billion — close to 3.9 per cent of 2019/20 Budget.

But the study could not establish the number of people holding incomes and assets abroad.

Most of the applications were from the UK, thanks to historical ties, but many others were made in US dollars and Indian rupees.

Despite the growth in the recent past on KRA revenues, there was no direct correlation between the uptake of the amnesty and the increase in revenue collection for the years it was in place — because there was no tax to be charged on the repatriated funds.

The amnesty policy did not provide for an inquiry on the source of the funds repatriated.

The amnesty did not, therefore, assist in the identification of illicit financial flows in Kenya as that was not its main objective.

That notwithstanding, Washington put Kenya on a list of global money laundering hotspots, citing insufficient controls on the circulation of dirty cash and the lack of laws against terrorism financing.


A March report by the US Department of State Bureau for International Narcotics and Law Enforcement Affairs said money laundering in Kenya occurs in the formal and informal sectors, fuelled by domestic and foreign criminal operations.

Kenya’s proximity to Somalia was seen to make it an attractive location for laundering and piracy-related proceeds.

And while Kenyan banks are subject to know your customer (KYC) and suspicious transaction reports (STR) rules that have enhanced due diligence procedures for politically exposed persons (PEPs), more needs to be done.

The challenges hindering adequate uptake of the amnesty included lack of clear policy guideline on declaration of real assets, inadequate capacity of the management system (iTax) to allow applications from across the globe, fear of uptake and weak monitoring and evaluation.

Clear policies and guidelines should be provided for repatriation of such funds while, for improved tax revenues, the amnesty should be extended to non-fliers and delinquents.

There is also a need for a clear post-amnesty period plan to harness greater impact from the amnesty. The programme could have had a better success rate if all the principles of a good amnesty were incorporated.

Mr Makori is the CEO, The Institute of Certified Public Accountants of Kenya (ICPAK). [email protected]