Kenya: Tycoons Defy Amnesty to Hide Sh15 Trillion Abroad

U.S. dollars (file photo).
11 October 2018

An amnesty for Kenyans to return money held abroad has had little impact with a new report showing Sh15 trillion is held in offshore accounts.

The money is enough to run the country's budget for five years and can also retire the mountain of debt (Sh5.1 trillion) that has caused pain through heavy taxation of basic commodities and service as well as fund the housing pillar of the Big Four agenda that requires Sh7 trillion.


Experts says the Sh15 trillion will remain abroad unless the government adds tax incentives to the no-questions-asked amnesty.

The report -- "Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality" -- by National Bureau of Economic Research, a US-based think tank, found that Kenya, given the size of the economy, was an "outlier" in terms of the number of shell companies registered by citizens.

"Among the countries that created a lot of shell companies (relative to the size of their economy), one finds Jordan, Russia, Taiwan, the U.A.E., Venezuela, Zimbabwe and Kenya -- which all have high offshore wealth to GDP ratios," says the report


The essence of shell companies is to hide ill-gotten wealth, evade taxation and defeat the laws governing cross-border movement of cash. The havens, defined by flexible tax laws, are found in Panama, Guernsey, the Bahamas or the British Virgin Islands.

The fresh data shows that wealthy Kenyans holding undisclosed funds in foreign banks have ignored a State tax amnesty to declare the money and repatriate it.

Treasury secretary Henry Rotich in the 2017/18 Budget statement gave Kenyans with wealth abroad one more year to repatriate it, keeping the amnesty window open until June 2019.

On Wednesday, experts called on Treasury to introduce more incentives for the cash to be returned home.


"The percentage of GDP held off shore is clearly an eye catcher. It speaks to a common sub-Saharan narrative it seems. Kenya is self-evidently an outlier," said Nairobi based investment analyst Aly Khan Satchu.

He said the wealth stashed away is likely to be "old money" mostly belonging to political figureheads in Kenya's successive regimes

"Politically exposed wealth probably saw the off shore markets as a safe haven strategy. This is now being reversed. A senior banker at an international bank told me a lot of this money is trapped because it cannot exit under the stringent Know Your Customer rules," he said. The rules are meant to curb laundering of proceeds of crime.

Kunal Ajmera, the chief operating officer at Grant Thornton, an independent accounting and consulting firm, said Kenya's "very high rate of taxation" and "very little in terms of incentives" made it difficult for "someone who wishes to invest the money in Kenya."


Besides money derived from corruption and fraudulent practices, Mr Ajmera said a lot of the money was made from tax evasion. He rated as modest the success of the amnesty.

In 2013, for instance, multinationals operating in Kenya avoided paying $907 million (about Sh91.4 billion) in taxes by booking lower profits and sales, according to the Washington based Global Financial Integrity, a watchdog.

In its report -- Kenya: Potential Revenue Losses Associated with Trade Misinvoicing -- it found that this affected nearly a quarter (23 per cent) of the country's foreign trade including mineral fuels, electrical machinery, vehicles, cereals and worn clothing for imports. Coffee, tea and spices, which comprise 90 per cent of exports, were the most affected by understatement of sales.


Invoicing gaps between traders related to imports were found to be in the range of Sh201 billion from under-invoicing and Sh76.7 billion. Those related to exports were Sh50 billion (under) and Sh34.3 billion) for export over-invoicing. The gaps refer to was what reported in Kenya and in its trading partners territories.

"The social cost attendant to trade misinvoicing undermines sustainable growth in living standards and worsens inequities and social divisions, issues which are critical in Kenya today," GFI President Raymond Baker said of the report's findings.


This creative invoicing also partly explains why KRA has been unable to meet its targets.

The report recommends that Kenya puts in place "legislative and regulatory" measures that put substantial disincentives for importers and exporters; detects misinvoicing as transactions occur, takes corrective steps in real time and claws back lost revenues through subsequent audits.

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