Nowhere to hide as taxman gets access to cash in offshore banks banks

The Kenya Revenue Authority (KRA) is set to get unfettered access to information on secret bank accounts held by Kenyans in 106 foreign countries, tightening the noose on tax evaders and beneficiaries of illicit wealth.

The National Treasury has, in a legal notice, disclosed that it is in the final stages of signing exchange-of-information agreements with multiple tax authorities across the globe, including popular tax havens such as Switzerland, Panama, Cayman Islands, Bermuda, the British Virgin Islands, Mauritius, Jersey and Monaco.

“These regulations shall come into operation on January 1, 2022,” states the legal notice signed by Treasury Cabinet Secretary Ukur Yatani.

All Kenyan banks, trusts and other resident financial firms, including local branches of non-resident

financial institutions, will be required to report to the taxman information on foreigners’ bank account numbers, names, addresses, residences, Tax Identification Number (TIN), date and place of birth and persons listed as its beneficiaries.

KRA will share this information with the participating countries, and in turn, receive from them information on Kenyans holding bank accounts in their jurisdictions.

Where bank accounts are held by companies, information on registered owners of the entities will be reported. Also to be disclosed is the amount of money held in the accounts or value of the accounts and their surrender value, if insured.

Veil of secrecy over assets

For custodial accounts, the institutions will be required to report the total gross interest, dividends and income credited to the accounts during the year and proceeds from sale or redemption of any financial assets credited to the accounts.

The regulations also require the financial entities to review all existing accounts with balances of above $250,000 (Sh28.22 million) as of June 30 next year.

This information will be shared with KRA for tax deduction, where applicable, and record-keeping and will also be automatically shared with other tax agencies from participating counties.

“Reporting financial institutions shall transmit to the Commissioner the Information Return... the information to be reported not later than May 31 of the year following the year in respect of which the declaration is filed,” states the regulations.

The Treasury Tax Procedures Act (Common Reporting Standards) Regulations 2021 are expected to lift the veil of secrecy over assets held by Kenyans abroad.

The Common Reporting Standards (CRS) framework was introduced in Kenya in July this year through the Finance Act 2021, which amended the Tax Procedures Act 2015, as per a framework developed by the Organisation for Economic Cooperation and Development (OECD) in July 2014.

The Act required the Treasury CS to publish the regulations that set out how financial entities would identify accounts to report and other relevant information. Under the CRS, the entities will be required to review their records to identify suspicious accounts that have to be reported based on due diligence assessment. Kenya joins over 100 countries that are signatory to the CRS.

Overseas tax havens

Thousands of wealthy Kenyans have stashed trillions of shillings in cash and other financial assets in tax havens abroad through complex arrangements that mask their true owners to escape tax scrutiny or spread their investment risks.

It’s unclear just how much money is stashed abroad by super-rich Kenyans, but a previous report by the National Bureau of Economic Research (NBER), an American think tank, estimated that wealthy Kenyans held more than Sh5 trillion in offshore tax havens across the world.

In October this year, President Kenyatta’s family was linked to Sh3.3 billion stashed in 13 offshore companies following revelations of a trove of 11.9 million confidential files unearthed by the International Consortium of Investigative Journalism through a team of more than 600 journalists in 150 news outlets across the globe.

The leak, known as the Pandora Papers, did not disclose the sources of the funds attributed to the First Family nor impute wrongdoing of any kind on the account holders. 

The new regulations will see financial firms face additional pressure on tax verification of account holders and review of compliance matters regarding their income and assets held abroad.

KRA commenced the voluntary tax disclosure programme in January, giving companies a window to confidentially disclose previously undisclosed tax liabilities to be granted reliefs or waivers.

The three-year programme will end on December 31, 2023 and covers tax periods of up to five years preceding July 1, 2020.

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