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Kenya is the latest nation to join the global trend of implementing the Common Reporting Standard (CRS). The CRS seeks to fight tax evasion and improve financial transparency by requiring Reporting Financial Institutions (RFIs) to report financial account data to tax authorities. The Tax Procedures Act of 2021 was updated to include the CRS, placing the onus on the Cabinet Secretary for Treasury, Njuguna Ndung’u, to create regulations to be officially implemented on 1st January 2023.
The OECD initiated the CRS in 2014 to combat the lack of transparency in financial data. Tax avoidance and hiding ill-gotten wealth in offshore accounts is an ongoing issue, and the CRS provides a legal framework to aid law enforcement in identifying unfiled tax returns and potential money laundering. The regulations will require RFIs to identify reportable accounts and provide information regarding account holders’ identities, residences, accounts, and tax identification numbers.
The CRS Multilateral Competent Authority Agreement (CRS MCAA) will enable Kenya to exchange information with 106 other countries. Financial account information includes name, address, and account balance or value at the end of each reporting period. Kenya is part of the global efforts to strengthen international cooperation in the fight against illicit financial activities.
One of the benefits of the CRS is that it places the responsibility on financial institutions to ensure tax compliance. Financial institutions must provide the necessary data and submit annual reports for the KRA to analyze. It is then up to the KRA to identify any potential tax defaulters and take corrective action where necessary.
Data privacy and security remain concerns and steps should be taken to protect reportable data from unauthorized access or misuse. To reinforce the effectiveness of the regulations, the Treasury Ministry has removed a clause that previously allowed unnecessary adjustments to the regulations. This move aims to restrict any possible loopholes for tax evasion.
In conclusion, Kenya has committed to financial transparency and improved the global effort to fight tax evasion and money laundering. The introduction of the CRS provides a legal framework to for financial institutions to report data, allowing tax authorities to better identify and prosecute individuals attempting to hide their wealth offshore. However, adequate measures must be taken to ensure data privacy and security