By John Kuria
When is an individual considered to have broken Kenyan tax residency?
As the East African Community opens up and Kenyan companies increase their investment outside Kenya , many Kenyans are taking up employment opportunities outside the country.
It appears that even though one leaves Kenya either permanently or for a period of time, the Kenya Government is still keen to follow the individual, wherever they are in the world to demand tax from them.
A controversial prerequisite in place for an individual to be considered tax resident in Kenya requires the individual to have a permanent home in Kenya and be present in Kenya for any period in a particular year of income — even if it’s just a day!
Under the current Kenyan tax laws, it is not possible to establish what a permanent home means and it is possible that the Kenya Revenue Authority (KRA) can take this to mean a home that is available to someone to live in when they visit Kenya.
But even more importantly is the fact that if a Kenyan citizen spends even one day in Kenya; either at the airport while on transit or steps on Kenyan soil, then he/she is automatically considered to be resident in that year and is required to file a tax return.
As a result, majority of the Kenyans who fall under this category feel that they will be double-taxed as they would be required to pay tax in their current host country as well as in Kenya because of their home and presence in Kenya.
It is no wonder then that the Finance Minister, in last year’s budget, found it fit to declare an amnesty for Kenyan citizens who are living and working outside Kenya and had not filed their Kenyan income tax returns.
But is it right for the Government to demand taxes from individuals living and working abroad? In fact, the question that begs an answer is, when does one break Kenyan tax residency?
In the event that a Kenyan citizen living and working abroad was to file a tax return in Kenya, they would be required to declare their income earned abroad, assess themselves for tax using the Kenyan tax rates (the graduated scale) and then take credit for the taxes paid in their current country of residency.
So the question again is what about those individuals who live and work in countries like Dubai where there are no taxes?
South Africafor example, has a well-developed and regulated taxation regime based on international best practice. In South Africa, where an individual has been away from the country for more than 183 days of which there is a continuous period of 60 days spent away from the country, then the individual is considered to be non-resident.
Tax on income is source-based, meaning that all income arising from a source within, or deemed to be within, South Africa is taxed. On the other hand, income not accrued in on or derived from South Africa is not taxable. In the UK, the income tax liability of one who is neither resident nor ordinarily resident in the UK is limited to any tax deducted at source on UK income. If one becomes non-resident i.e. does not spend more than 183 days in a tax year in the country, they do not pay UK tax on their overseas income.
It is a high time that the tax law in Kenya came out clearly and spelt out at what point one is considered non-resident for tax purposes and stops placing the burden of having to file tax returns for Kenyans who have left Kenya for greener pastures.
I am sure this would not only give peace of mind to the individuals themselves, but also to their employers, who could be held liable for any taxes due if they had a presence in Kenya.
Maybe it is about time that all this bickering about who will take the slot for governor or senator stops and for us to focus our attention on amending some of our obscure laws.
The Kenya Revenue Authority should provide some simple guidelines on this so that many Kenyans living abroad can rest knowing that they don’t have to pay additional taxes because of a section of the law that just needs a simple fix!
—This writer is a Tax Manager, Deloitte Kenya.