New taxation law favours diaspora but needs clarity

 The newly signed Finance Act 2022 has clearly defined what ‘permanent homes’ means for purposes of taxation on earnings by Kenyans in the diaspora. This is an important development, especially for the thousands of Kenyans working abroad who are long inconvenienced by demands to pay taxes to Kenya Revenue Authority (KRA) even when they had no financial interests locally.

Previously, the Income Tax Act was ambiguous and subjected many Kenyans in the diaspora to unnecessary run-ins with the taxman, which mostly deemed all the citizens to have a permanent home in the country whether or not they lived here. It required that a person resident in Kenya in a year of income declare and pay tax on any employment income received, regardless of where the employment is exercised.

That was unfair, because the tax claims against individuals with no economic or financial gains in Kenya were tantamount to double-taxation. But now, the Finance Act 2022, which took effect on July 1, defines a ‘permanent home’ as “a place where an individual resides or which is available to that individual for residential purposes in Kenya or where, in the opinion of the [KRA] Commissioner, the individual’s personal or economic interests are closest.”

This is laudable. It spares those non-resident in Kenya the anguish of having to make tax contributions in a location where they don’t enjoy services financed through such collections.

There is, however, more room to further improve this law by defining what ‘closest economic ties” means. This is because there remains a risk that this may still be interpreted differently by KRA and taxpayers. The National Treasury should urgently come up with subsidiary rules to the law and define what will be considered as one’s closest personal or economic interest to avoid a standoff between KRA and taxpayers.

Nonetheless, the spirit of the changes contained in the Act is good and, if well implemented, would ensure fairness. Taxation is a sensitive matter that directly affects one’s take-home and must, therefore, be handled fairly.