Kenyans with personal and economic interests abroad have been excluded from the mandatory payment of taxes locally even if they stayed in the country for an entire income year.
The Finance Act 2022, signed by President Uhuru Kenyatta , introduced a new definition of ‘permanent home’ under the Income Tax Act—marking a relief to thousands of Kenyans long inconvenienced by tax demands by the Kenya Revenue Authority (KRA).
“‘Permanent home’ means a place where an individual resides or which is available to that individual for residential purposes in Kenya, or where in the opinion of the Commissioner the individual’s personal or economic interests are closest,” the Finance Act 2022 says regarding the changes that took effect on July 1, 2022.
Currently, the Income Tax Act is ambiguous with the KRA mostly deeming all Kenyan citizens to have a permanent home whether or not they live in the country.
But under the new law, Kenyan citizens may not necessarily become ‘tax residents’ or have personal or economic interests in Kenya even if they stayed around for an entire income year.
Analysts said the changes are a major relief to many Kenyans who have over the years faced taxes locally even when their economic interests lay elsewhere.
“Currently, the Kenya Revenue Authority tends to deem all Kenyan citizens to have a permanent home whether or not they live in Kenya. A person who is resident in Kenya in a year of income should declare and pay tax on any employment income that he/ she receives regardless of where the employment is exercised,” consultancy firm Deloitte said in an April commentary on the proposals in Finance Bill 2022 which has since become law.
“The introduction of the definition of a permanent home may relieve many Kenyan citizens from this requirement if they will not be considered to have a permanent home in Kenya.”
The new ‘permanent resident’ definition, however, means that foreigners in Kenya could be deemed to qualify for local tax obligations even if they are in the country for a single day of their entire income year.
“Currently, KRA considers a foreigner to be resident in Kenya if he/ she is in Kenya for at least 183 days in a particular year or an average of 122 days in the year under consideration and the preceding two years,” Deloitte said.
The audit consultancy urged clarity or guidelines on the definition of an individual’s personal or economic interests instead of leaving the discretion to the Commissioner. “If passed as it is, taxpayers will still be unable to determine what is considered to be ‘their closest’ ties and therefore the definition provided in the Bill is too subjective,” it said.
“To reduce an individual's compliance burden, the Commissioner should publish guidelines, based on established precedence, on what would be considered to be an individual’s closest personal or economic interest,” Deloitte added.
Many Kenyans have taken up job and investment opportunities abroad with Kenya becoming a secondary interest to them.
The large shift abroad has turned positive for the Kenyan economy with remissions from the diaspora now becoming a major contributor to the country’s wealth. Part of the cash sent from abroad goes into key economic sectors such as real estate, agriculture, and the hospitality industry.
Data by the Central Bank of Kenya shows that in the five months to May this year, Kenyans in the diaspora sent back home a total of Sh202.27 billion ($1.72 billion).
In 2021, Kenyans living abroad sent home Sh420 billion ($3,718 million), reaffirming the sector’s dominance in earning the country foreign currency.
