Banks have started sharing information about foreign account holders with the Kenya Revenue Authority (KRA) as the taxman steps up its purge of tax dodgers and beneficiaries of illicit wealth.
Some banks on Thursday notified their customers that they had started implementing the common reporting standards (CRS) under which countries agree to seamlessly share information on taxpayers.
The KRA is also expected to receive similar details on a resident taxpayer with an offshore account.
For individual account holders, banks will share with taxman details such as account balance, address, place of birth, date of birth, country or countries of tax residence, and ID numbers.
In the case of corporate entities, banks are also expected to collect and forward to the KRA information on the place of registration, the entity type, and the controlling person.
In January last year, the Treasury Cabinet Secretary signed the Tax Procedures (Common Reporting Standards) Regulations, 2023, which require all Kenyan banks, trusts, and other financial institutions to report foreigners’ details to the KRA.
The KRA will then share this information with 106 signatory countries—including popular tax havens such as Switzerland, Panama, the Cayman Islands, Bermuda, the British Virgin Islands, Mauritius, Jersey, and Monaco.
The tax authorities in the other signatory countries are in return required to share similar information with the KRA, enhancing the taxman’s chances of getting its hands on cash hidden in offshore accounts.
Just like the anti-money laundering rules that require financial institutions to report cash transactions of over Sh1 million to the Financial Reporting Centre, banks are expected to review all existing accounts with balances of above $250,000 (Sh40 million) belonging to a foreigner.
However, tax experts caution that banks and the KRA walk a tightrope in safeguarding customer confidentiality in line with the Data Protection Act.
“Further, the CRS requires participating authorities to have data safeguards in place and I think this is what the Data Protection Act resolves,” said Robert Waruiru, a partner at Ichiban Tax & Business Advisory LLP, adding that the EU tax residents will be subject to the much more stringent EU data regulations.
Being a signatory to the CRS, Kenya hopes to lift the veil on assets held by Kenyans abroad, especially companies and individuals that have set up shop in low-tax jurisdictions.
In 2017, the Treasury announced a tax amnesty offer to attract Kenyan investors who had stashed their wealth abroad to return it without being penalised.
Kenya the same year struck a deal with the Jersey government for repatriation of more than Sh380 million confiscated from a company associated with former Kenya Power managing director Samuel Gichuru.
CRS was developed by the Organisation for Economic Co-operation and Development (OECD), a club of mostly rich countries, in July 2014 to reduce instances of tax evasion through the sharing of information among jurisdictions on an annual basis.
In the Finance Act, 2021, Kenya adopted the common reporting standards, which allows the KRA to seek information on a taxpayer from tax authorities in other jurisdictions.
Earlier on July 22, 2020, Kenya signed the CRS Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information and adopted the OECD Regulations as drafted.