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Banks have commenced the sharing of customer data and account balances with the Kenya Revenue Authority (KRA) as part of the tax agency’s intensified efforts to combat tax evasion and identify beneficiaries of illicit wealth.
Certain banks recently informed their customers that they had initiated the implementation of Common Reporting Standards (CRS), a framework wherein countries commit to exchanging information about taxpayers seamlessly.
Under CRS, the KRA is anticipated to receive similar information about a resident taxpayer holding an offshore account. For individual account holders, banks are required to share 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 mandated to collect and transmit information to the KRA regarding the place of registration, entity type, and controlling person.
In January of the preceding year, the Treasury Cabinet Secretary endorsed the Tax Procedures (Common Reporting Standards) Regulations, 2023. These regulations mandate all Kenyan banks, trusts, and other financial institutions to report details of foreign account holders to the KRA.
The KRA intends to share this information with 106 signatory countries, encompassing well-known tax havens like Switzerland, Panama, the Cayman Islands, Bermuda, the British Virgin Islands, Mauritius, Jersey, and Monaco.
Similar reciprocal sharing of information is expected from tax authorities in other signatory countries, enhancing the KRA’s ability to trace funds concealed in offshore accounts.
Aligning with anti-money laundering rules, which necessitate reporting cash transactions exceeding Sh1 million to the Financial Reporting Centre, banks are tasked with reviewing all existing accounts with balances exceeding $250,000 (Sh40 million) held by foreigners.
Despite these measures, tax experts caution that banks and the KRA must carefully balance their actions to uphold customer confidentiality in accordance with the Data Protection Act.
Robert Waruiru, a partner at Ichiban Tax & Business Advisory LLP, highlighted that the CRS mandates participating authorities to have robust data safeguards, a requirement addressed by the Data Protection Act. Additionally, European Union tax residents will be subject to more stringent EU data regulations.
Kenya’s adoption of CRS, as a signatory, aims to unveil assets held by Kenyans abroad, particularly entities and individuals operating in low-tax jurisdictions. In 2017, the Treasury introduced a tax amnesty to encourage Kenyan investors who had stored their wealth abroad to repatriate it without facing penalties.
Furthermore, Kenya struck a deal with the Jersey government in the same year for the repatriation of over Sh380 million confiscated from a company associated with the former Kenya Power managing director, Samuel Gichuru.
The CRS, developed by the Organisation for Economic Co-operation and Development (OECD), seeks to combat tax evasion by facilitating the annual exchange of information among jurisdictions. In the Finance Act of 2021, Kenya formally adopted these common reporting standards, empowering the KRA to seek information about a taxpayer from tax authorities in other jurisdictions after signing the CRS Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information in July 2020.
