REMITTANCE

Diaspora inflows at all time high in June as tax amnesty ends

The high remittance can however be attributed to the rush by the diaspora to repatriate funds home before June 30

In Summary
  • The remittance inflows rose to an all-time high in June 2019 amounting to $295 million compared to $243 million in May
  • The remittances in Kenya have risen to become the biggest source of foreign exchange, ahead of tourism, tea, coffee and horticulture exports
The Central Bank of Kenya. Photo/Monicah Mwangi
The Central Bank of Kenya. Photo/Monicah Mwangi

Kenya’s in diaspora sent home highest amount of money ever last month, taking advantage of the last days of tax amnesty on foreign earnings that lapsed on June 30.

The weekly bulletin by the Central Bank of Kenya (CBK) on Friday reported June’s remittance inflows at $295 million (Sh30.4 billion), highest ever in monthly series, pushing up year on year inflows by 13.6 per cent to $2.768 billion (Sh285.1 billion).

‘’The remittance inflows rose to an all-time high in June 2019 amounting to $295 million compared to $243 million in May,’’CBK said.

The banking regulator did not give a reason for the growth. It however indicated that North America, Europe and the Rest of the world accounted for 38 per cent, 32 per cent and 30 per cent of money received respectively.

The high remittance can however be attributed to the rush by the diaspora to repatriate funds home before June 30.

On Friday, CBK’s usable foreign exchange reserves remained adequate at $9.747 (Sh1.003 trillion) billion (6.2 months of import cover), meeting the regulator’s statutory requirement to endeavor to maintain at least four months of import cover, and the East Africa Community region’s convergence criteria of 4.5 months of import cover.

This was however a slight drop compared to $9.765 billion (Sh1.006 trillion) reported the previews week.

The East African state had in 2016 amended the Tax Procedures Act to introduce Section 37B which granted amnesty on foreign income that had been earned on or before 31st December 2016.

This was later amended on April 3, 2017, 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.

Treasury CS Henry Rotich was silent on the matter when he presented the 2019/2020 budget statement in June, meaning, any money repatriated into the country will attract a 10 per cent tax penalty starting this month.

The remittances in Kenya have risen to become the biggest source of foreign exchange, ahead of tourism, tea, coffee and horticulture exports.

They have played a big role in the stability of the shilling in the past 10 months since the country’s precautionary from the International Monetary Fund (IMF) expired in September.

Although the total for 12 months to June hit Sh285.1 billion, slightly above Sh280 billion reported last year, taxation is likely to hurt remittance for the next six months to December, decelerating the annual total.

Less diaspora inflow is also expected to hurt the country’s foreign reserve which is only currency shock buffer in absence of the IMF facility.

This could have a negative effect on the country’s currency and spill over effects to almost all sectors of the economy.