Wealthy Kenyans of Indian descent have over the past eight months brought back more than $127.7 million from banks in India's Gujarat state under an extended tax amnesty that is set to expire in four months.
Kenya extended a tax amnesty in June to individuals who may have stashed away money abroad, promising them immunity against prosecution, as it seeks to ramp up its cash reserves.
Data from the Kenya National Bureau of Statistics shows that the foreign currency deposits held in banks rose by $600 million in June, a trend analysts attributed to Kenyans taking advantage of the tax amnesty on foreign-held assets and also higher diaspora remittances.
The KNBS data showed that the forex deposits rose to $5.74 billion in June, up from $5.14 billion the previous month, with most of these funds heading to tier three banks that have seen higher inflows as the deadline for the amnesty approaches.
According to the Times of India, the quarterly data compiled by the State Level Bankers Committee in Gujarat, the highest body of bankers in the state representing 46 banks, including Bank of India and Baroda, more than $59 million was withdrawn from the Gujarat state banks between April and June this year.
"Bank officials and tax experts believe that a staggering $127.7 million in non-resident Gujarati deposits have been withdrawn from Kutch banks since December last year, with the majority of the withdrawals done by the Bhuj and Mandvi talukas native to Gujaratis who have settled on the continent," the Times of India reported.
"Under the Kenyan tax amnesty scheme, citizens are supposed to repatriate their foreign earned assets and also to declare their foreign earned income before the expiry of the amnesty in order to avoid penalties," said the lead district manager at Kutch, SLBC Gujarat Sanjay Sinha.
The wealthy individuals are avoiding the 10 per cent penalty if they fail to repatriate and declare their foreign earned income before the December deadline.
"The voluntarily declared funds should be repatriated to Kenya within the amnesty period. Funds not repatriated within the amnesty period may be repatriated within a further five-year period but with a 10 per cent penalty on such remittances," the Kenya Revenue Authority said in a notice.
The move comes as the country last week played host to a delegation of more than 30 businesses from Gujarat who were in Nairobi scouting for investments.
"They were so much interested in Kenya's energy, agricultural mechanisation, health, mining and ICT sectors. We had a good engagement with government officials," the Indian High Commissioner to Kenya Suchitra Durai said.
Two years ago, Kenya amended its tax law to provide amnesty on income declared for the year 2016 by a person who earns taxable income outside Kenya. However, this has seen lower uptake that has seen National Treasury Cabinet Secretary Henry Rotich, twice extend it in a bid to woo more wealthy Kenyans to repatriate their cash back into the country.
"We realised that even with the extension, the uptake of the amnesty has been low mostly because there were concerns that when the money is returned, there would be question the source as required by Financial Reporting Centre," Mr Rotich said.
The current amnesty, as issued during the 2018/19 budget presentation now offers a blanket buffer, allowing Kenyans to repatriate their money tax-free with no questions asked about its source.
Kenya has also seen its diaspora remittances, outside of its traditional markets of North America and Europe, rise steadily from $27.6 million at the start of the year to $51.8 million as at the end of June, latest data from Central Bank shows.