Kenyan banks have taken initial steps to comply with a new US government regulation that requires them to disclose account details of American citizens.
The rule, which is set to come into effect in June next year, requires banks to disclose account details to the US taxman, the Internal Revenue Service (IRS).
Banks that fail to comply with the law risk paying cash penalties to the US government.
The US embassy in Nairobi said there are about 20,000 American citizens resident in Kenya, but declined to give further details regarding their tax, work or residence status.
“We as (the Kenya Bankers Association) KBA have already decided we will form a working group composed of banking institutions to study the implications of the law,” said Habil Olaka, chief executive of the industry lobby KBA.
He said KBA had been in contact with the Treasury, the Central Bank of Kenya (CBK) and the Kenya Revenue Authority (KRA) to discuss the extent to which the law is applicable locally or could be complied with.
The US government recently passed the law which requires financialinstitutions both at home and abroad to discloseaccount details of their citizens to assist in assessing whether they pay all taxes, claiming it was losing $100 billion annually through evasion.
Tax experts say that the new Foreign Account Tax Compliance Act (FATCA) affects both American and non-American financial institutions.
It imposes new costs in terms of personnel and systems for Kenyan banks that have to adjust their systems to be in compliance.
“The reason for the new law is that the US government believes it is losing a lot of tax revenues through evasion. It is trying to close loopholes and one of these is keeping tabs on details of bank accounts of its citizens abroad,” said Mr Richard Njoroge, a partner at financial advisory firm PricewaterhouseCoopers (PwC).
Failure to meet the FATCA requirements comes with penalties as US-based financialinstitutions will be required to retain or withhold as much as 30 per cent of cash that might be due to a defaulting bank.
Withholdable cash under FATCA includes dividends, interest payments, rents, salaries, annuities, proceeds from sale of properties in the US, and any US-sourced income.
Incomes from trade-related transactions such as imports and exports are however not withholdable under FATCA, said Mr Njoroge.
“An institution in the US is to deduct 30 per cent of the cash destined to a Kenya-based bank that has not met the requirements. That will affect correspondent banking because banks in the US might deal only with complaint Kenyan banks,” said Mr Njoroge.
Correspondent banking involves prior arrangements between Kenyan banks and foreign ones to receive or accept deposits or ensure payments for transactions on behalf of each other when they are located in different jurisdictions.
Mr Njoroge said many Kenyan banking institutions may be unaware that they face the June 30, 2014 deadline to submit the account details of American citizens who keep money with them.
“The US government wants to be sure that tax declarations reflect the real tax liabilities of its citizens who are living abroad. It wants to see the complete picture of their citizens’ incomes and account behaviour because they believe banks hold this information,” said Mr Njoroge.
Mr Olaka said that there was a possibility that the deadline for compliance would be extended as many jurisdictions may be unable to meet it, since it is rather close.
“We have discussed this and we are taking it up with the Treasury and the central bank to see whether we can come up with some concerted effort as an industry rather than each bank acting on its own. We as yet don’t know how much or what it will cost us,” said Mr Olaka in an interview.
Tax collection body
The Business Daily had sought to know from the US embassy the applicability of the FATCA to Kenya, whether the embassy or the US government had been in contact or discussion with the authorities about implementation of the law and how the associated costs would be paid.
We also enquired whether the embassy knew of the number of accounts US citizens hold in Kenya, as well as their estimate of the amount of tax US citizens may be evading.
Mr Njoroge said that financial institutions foreign to the US are supposed to registerwith IRS which is the country’s tax collection body.
“Banks have become so transnational that it is difficult not to have US citizens as customers. This is a ‘big brother’ unilaterally imposing laws that only the US can. But costs of imposing this law could outstrip whatever tax the US government gets,” said Mr Njoroge.
Source-businessdaily.co.ke
Kenyan Banks to Reveal Account Details of American Citizens
Kenyan Banks to Reveal Account Details of American Citizens
