In Summary
  • Treasury secretary Henry Rotich in 2016 offered a tax pardon to encourage fat cats holding undeclared assets overseas to bring them home by June this year, leading to a last-minute rush in May.
  • Mr Rotich, however, extended the deadline to June 2019, and relaxed the scrutiny on how the assets were accumulated to encourage compliance.

Foreign currency deposits in local banks have risen past the half a trillion mark for the first time, mainly driven by Kenyans sending money home to take advantage of the tax amnesty programme.

The Kenya National Bureau of Statistics (KNBS) and the Central Bank of Kenya (CBK) say in their latest reports that the foreign currency holdings stood at Sh514 billion at the end of May, having risen 17 per cent or Sh73 billion in 12 months.

“From our discussions with the banking sector players, we attribute the increase in foreign exchange deposits to the tax amnesty programme, with a number of tier three banks recording notable inflows,” said Genghis Capital macroeconomic analyst Churchill Ogutu.

“With the tax amnesty extended till June next year, we expect the foreign exchange deposits to continue the positive momentum.”

Treasury secretary Henry Rotich in 2016 offered a tax pardon to encourage fat cats holding undeclared assets overseas to bring them home by June this year, leading to a last-minute rush in May.

Mr Rotich, however, extended the deadline to June 2019, and relaxed the scrutiny on how the assets were accumulated to encourage compliance.

Bad economic times

Forex experts say that under normal circumstances foreign currency deposits grow when people are looking to secure hard currency ahead of bad economic times, meaning that it would take an extraordinary event like the tax amnesty to push them up at a time when the economy is tipped to perform better than last year.

Those who will fail to comply with the amnesty terms will face a 20 per cent penalty on the tax payable for any undeclared funds on top of the tax payable.

The CBK data on diaspora remittances also reflects the rising flows, that hit a monthly record of Sh25.5 billion ($253.7 million) in May.

Cumulatively for the first five months of the year, the remittances stood at Sh112 billion ($1.11 billion), a 52 per cent increase over the same period in 2017, when cumulative remittances stood at Sh73.6 billion ($732.7 million).

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