Cash remittance by Kenyans abroad has slowed after the end of the tax amnesty on foreign earnings on June 30.
Data by the Central Bank of Kenya for the January-August period shows Kenyans in the diaspora sent $1.89 billion (Sh196.17 billion) compared to $1.81 billion (Sh187.87 billion) the same period last year.
“What we are seeing is there hasn’t been a slowdown in cash inflows despite economic difficulties in some of the donor countries,” Stanbic economist Jibran Qureishi said.
The 4.42 per cent growth is a decline when compared to the 49.59 per cent ($603.06 million- Sh62.59 billion) increase in inflows witnessed over the same period last year.
As analysts at PriceWaterhouseCoopers had earlier predicted, most Kenyans living abroad waited until the last minute to send the bulk of their cash under the amnesty as foreign cash inflows hit an all-time high of $295.32 million.
After the June 30 deadline diaspora inflows took a downturn to $224.49 million in July before dipping further to $214.31 million in August.
The Tax Procedures Act which granted amnesty on foreign income that had been earned on or before 31st December 2016 was initially amended extending the deadline to allow full amnesty provided the foreign income was declared and funds realized were transferred to Kenya no later than 30th June 2018.
The amnesty was further extended to 30th June 2019, despite concerns that it would lead to inflows of illicit cash including proceeds from corruption.
With the amnesty period lapsed, Kenyans who missed the time frame can apply to be granted a five year period to remit the funds subject to a penalty of 10 per cent on remittance.
While remittances to the country continue to lead as Kenya’s biggest foreign exchange earner ahead of tourism, tea, coffee and horticulture exports, taxation imposed from July onwards are likely to reduce the annual amount of cash sent back home.
Inflows have played a major role in cushioning the shilling against external shocks over the 11 months since the country’s precautionary fund from the International Monetary Fund (IMF) expired.
This means, a decline in diaspora inflows could reduce the country’s foreign exchange reserves, which stood at $8.93 billion (5.58 months of import cover) as at October 3.
While forex reserves have increased from $7.97 billion (5.2 months of imports cover) reported as at January 3, the October reserves are a drop from $9.13 billion (5.8 months of import cover) reported at the end of the amnesty period.
Kenya Diaspora Alliance chairman Shem Ochuodho says there needs to be a tool that can benefit the public rather than the foreign inflows just being sent back to relatives.
