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Let’s go beyond tax amnesty and harness diaspora potential

Posted by Administrator on June 30, 2011

A member of the Rwandan diaspora wears a T-shirt bearing a portrait of Rwanda’s President Paul Kagame during a demonstration in Geneva. Kenyans in the diaspora have been granted a tax amnesty if they declare income and file tax returns, a move that analysts say could work in the reverse and fail to lure their investments. AFP photo

A member of the Rwandan diaspora wears a T-shirt bearing a portrait of Rwanda’s President Paul Kagame during a demonstration in Geneva. Kenyans in the diaspora have been granted a tax amnesty if they declare income and file tax returns, a move that analysts say could work in the reverse and fail to lure their investments. AFP photo

The Finance Minister declared a generous amnesty to the Kenyan Diaspora for any year of income ending on or before 31 December 2010.  The amnesty covers taxes due, penalties and interest on condition that the income for the year 2010 is declared and returns and accounts for the same period are filed no later than 30 June 2011.

The amnesty means well, and the minister hopes it will translate into higher remittances from the diaspora.  He noted that a number of Kenyans have shied away from remitting funds for investment in Kenya because of the requirement to declare income and file returns in Kenya.

The Kenyan diaspora’s contribution to the Kenyan economy is well acknowledged.  In my view, the government has to think long and harder how to leverage the diaspora phenomenon.

That Kenya has a large diaspora did not happen by design.  The political crackdown of the 80’s and severe economic decline of the 90’s seem to have been the main cause.  Interestingly, it is only in the last 10 years that remittances from abroad have grown tremendously.

It would appear to have been an endorsement of the new government that took over from 2003.  There were no incentives whatsoever directly provided by the government.  It was a natural consequence of having a more palatable government in power.
Based on the foregoing, it can then be argued that there are certain softer issues that encourage the diaspora to invest back at home.  The political and economic climate must be right.

The government has to go beyond a tax amnesty in order to work out a package that would harness the enormous potential that the diaspora presents.  We have to look at the Kenyan diaspora in the same way as are foreign investors.  The government has gone a long way to wooing foreign investors with a raft of incentives.  A tax amnesty is not a good starting point.

You see, an amnesty comes with some negative connotations.  It implies, firstly, that the beneficiaries of the amnesty have been evading taxes and the government is giving them opportunity to come clean.

Secondly, and naturally, after an amnesty comes the cracking of the whip.  So what happens to those who do not partake of the amnesty? Are we not causing panic with the amnesty?

In the same Budget Speech, Minister Uhuru Kenyatta averred that our VAT law is not modern and in keeping with best practice.  I wonder what he thinks of our Income Tax law.  Lifted directly from the EAC Income Tax Management Act of 1973, no amount of amendments will bring it in line with modern economic and business trends.

Our commercial and revenue laws have to be modernised to become relevant to present day changes in global and cross-border trade, manpower mobility, technological innovations.

Apart from the migration of the 80s and 90s, more and more Kenyans are finding employment in the rest of Africa.  This has happened in two ways:  either the spread of Kenyan businesses across the continent or a number of foreign multinationals that hubbed their operations in south Africa, middle east or Europe are increasingly making Kenya the hub for their Africa and even middle east operations.

This in turn means those Kenyan entities are increasingly dispatching Kenyans to those other African countries that they oversee.
The above phenomenon is good for Kenya as it helps address the perennial unemployment problem.  The president is on record urging Kenyans to seek job opportunities abroad.  Secondly, as Kenya becomes the corporate regional headquarters for more companies, this attracts other investments, visitors as well as enhancing the opportunity to also become a financial centre.
Kenya citizens are liable to pay taxes in Kenya if they are technically resident in Kenya.  The Income tax Act has a very aggressive definition of when a Kenyan citizen is resident in Kenya for tax purposes.  If one has a permanent home in Kenya, and in a particular year was present in Kenya for any period of time, then for tax purposes, that person is deemed to be resident for that full year.

Resident

Kenyan courts, in interpreting that definition have also taken a very aggressive stance.  For instance, presence in Kenya would include over-flying the Kenyan airspace.  One is deemed to have a permanent home in Kenya if he was born in Kenya and there is no need to demonstrate the possession or presence of a physical home.

Such an aggressive stance fails to recognise there are two types of Kenyan Diasporas.  Foremost, there are Kenyans who relocated from Kenya without the intention to return.  They have taken up residence and even citizenship in other countries.
Secondly, there are Kenyans who left temporarily for employment reasons – either a foreign job or a secondment to another country.  Thus our tax laws need to recognise the above scenario.

Kenyans who are not “ordinarily resident” in Kenya are essentially like foreigners who come to tour Kenya.  To demand that they pay taxes would be akin to asking tourists and foreign investors coming to Kenya to pay income tax.

As Kenya becomes more economical and politically mature, a number of the Kenyan diasporas have invested heavily in Kenya and are considering permanently relocating to Kenya.  If they return then they will become “ordinarily resident” in Kenya and will pay their taxes.

Until then, any attempt to loop them into the tax net might be a huge disincentive to invest and return to Kenya.  Clearly no one would wish to return to Kenya permanently or on short visit, if there is a risk of trouble with KRA.

Kisuu is the Regional Tax Partner for PKF Eastern Africa.  The views expressed herein are personal and do not necessarily represent the firm’s view.

Source: http://www.businessdailyafrica.com/Opinion+++Analysis/Lets+go+beyond+tax+amnesty+and+harness+diaspora+potential/-/539548/1191602/-/icfs46/-/index.html

3 Responses to “Let’s go beyond tax amnesty and harness diaspora potential”

  1. Ngorongo kwao said

    This ia all about taxes. Uhuru, are you serious or uninformed? You surely expect the diaspora to pay taxes when they are already overtaxed at their places of residence? You are looking at finding ways to audit these people so you can get to their monies; the same peolple who contribute so much to the weakening Kenyan economy and save the the kenyan shilling….this is dangerous grounds. You should capitalize on minimizing wasteful spending by legislators….

  2. Jamo said

    The Finance Minister can go to hell with his Amnesty.That is crap!!. Sir,you need to resign in your desperate attempts that include trying to cross the oceans and still from hard working Diasporeans.The American system will never allow you.We need totally new leadership come General Elections in 2012.That’s why the USA is confident in labelling Mwau a “drug dealer”,case closed.

  3. I agree with the Diasporians feeling spiked by the tax amnesty especially now that the debate in Kenya is on MPs fighting hard not to pay taxes over their million-shilling plus earnings for doing virtually nothing in Parliament. I know this is a sensitive subject but the tax rebates in exchange for voting in a particular predilection in Parliament makes our Kenyan MPs self-confessed serial development killers and guns for hire to thwart the aspirations of Kenyans, otherwise, why would anybody bribe them to do what the voters have mandated them to do? The many Kenyans living in the Diaspora are the brain drain that had to leave because of the untenable political and economic decline in the country. That they have, of their own accord, sought to recreate their lives in foreign lands, and some succeeded in the efforts, through hard work, should not now attract the sights of those intending to get more taxation in order to afford the high-flier lives for Parliamentarians, many known for nothing but living like casanovas.
    Our new constitutional order in Kenya is calling for increased accountability and transparency and perhaps it is time Kenyans started auditing the substance of the contributions of their MPs in Parliament as many are earning for merely making appearances in the august house.
    But that aside, there is need for Kenyans in the diaspora to make inroads to make the new constitutional order a reality. For starters, there are credible leaders out there who should now return to make a positive contribution towards making this country as functional as some of the cities in developed countries that some of us as Kenyans can only look at and wonder.
    A fellow Kenyan travelling with me to Karlsruhe in Germany went “wow” virtually throughout our recent tour at the modern technology in tram transport, connections between cities and cross border train connections, cleanliness and environmental sanity, mineral water in the taps! among other enviable developments.
    Kenya has started on the right footing with the reform of the road infrastructure in Kenya and this is doing miracles to development. The Diaspora could do well to come in and contribute to the advancement of all these economic activities, as well as investing in the grounds that are now opening up with the construction of new routes and roads. The newspapers this July 12, 2010 day speak of the forthcoming commuter train service to Athi River and Machakos, which promises the first leg towards realizing the fast trains and city electric tram system that is as ordinary as salt in European cities. We need you in the diaspora to come up with these ideas that will make Kenya what we can only go to see in Europe and America and it does have to take 100 years as my “wow” friend thought, and that was because of the feeling that our economy cannot be directed in that way by the corrupt politicians thinking of their bellies only. You in the diaspora and us in Kenya can make the change needed to spark development in a faster lane through the new constitution. Do not just stay out there and feel comfortable in foreign lands when your motherland is pleading for your engagement to change in tandem with the reforms we fought for with sweat and blood. The circumstances that may have compelled many of those in the diaspora to leave Kenya helter skelter may not all have changed, but there is certainly a new direction for this beautiful country. The exposure and experience you have garnered from living and working in the developed countries gives you the right impetus to come and make the Kenyan society adopt a running speed in development. We need not re-invent the wheel, but there is certainly need for the wheels to be fitted into the right kind of vehicles one that understands the Kenyan terrain. You may be that African-tested cog and your motherland is waiting for you. Invest in your motherland now and take pride in leaving a legacy of a better country than the one from which many of you ran away from. Let us make this change together and, at least leave our future generations in safe hands. A good friend of mine, Senator Daschle of the National Democratic Institute once told me, “Our youth are a message to a future that we will not see. What message will we send?” Let us invest in this youth with a message of hope, faith, perseverance and hard work. We cannot afford to give up and we cannot rest on our laurels because of the temperate climates of the West. Home is is always the best. Ask me. Laban G. Gitau – 254 723 705 179 – cinnamongreen58@gmail.com

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