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The East African : Jul 12th 2015
The EastAfrican 36 NAIROBI STOCK EXCHANGE Confusion over shares and bonds tax Mix up could hu≥t investo≥ confidence, slow down activities at Kenya’s stockma≥ket By JAMES ANYANZWA The EastAfrican S tockmarket investors in Kenya are yet to understand how a new withholding tax on share and bond trading will be collected, as there is a discrepancy between the information contained in the budget speech and the Finance Bill 2015. Meanwhile, the Kenya Revenue Authority has ordered stock brokers to remit capital gains tax (CGT) collected in the past six months — when a five per cent tax on profits from the sale of shares and bonds came into effect. The mix-up is likely to hurt in- vestor confidence and slow down activity in East Africa’s largest securities market, whose market value is estimated at Ksh2.27 trillion ($22.62 billion). “The current legal framework requires stockbrokers to submit their returns and remit the resultant taxes to the commissioner. Such declarations relate to their volume of business within the applicable period (January to June),” Alice Owuor, Commissioner in-charge of Domestic Taxes told The EastAfrican, adding, “For any collecting agent that is yet to comply and submit returns, the authority is actively pursuing them to ensure compliance with the law.” According to KRA, a total of Ksh600 million ($5.94 million) on capital gains taxes had been collected by the end of last week, up from Ksh381 million ($3.77 million) by mid-May. The amount also includes settlement from stockmarket intermediaries. About half of Kenya’s 23 stock- brokers and investment banks had complied with the law, according to the KRA. The Kenya Association of Stock- brokers and Investment Banks (KASIB) — the lobby group for NSE stock brokers are unsure about when the tax should be imposed. Pic: File the market intermediaries — said some of its members have received demand letters to comply with the tax law. “Some members have received tax demand letters while some have not,” said Willy Njoroge, chief executive of KASIB, “We are in the process of engaging KRA and the Capital Markets Authority to see how we are going to sort out this issue, because it relates to taxes that were there before the budget speech on June 11.” In his budget speech on June 11, Kenya’s Cabinet Secretary for National Treasury Henry Rotich removed the five per cent tax on capital gains arising from the sale of shares and instead introduced a 0.3 per cent withholding tax on the transaction values of the shares in a bid to boost activities in the capital markets. The Finance Bill 2015, however, proposes to amend the Income Tax Act and impose the tax on $5.94m By CHRISTABEL LIGAMI Special Correspondent EAST AFRICAN countries are working on a joint strategy to exploit the US preferential market access, which Washington has extended for another 10 years. The strategy to be adopted in September by the five partner states will help consolidate their products and enable them to export as a bloc to meet US demand under the African Growth and Opportunity Act (Agoa). According to James Kiiru, from Kenya’s Min- istry of Foreign Affairs, the partner states will retire their current national Agoa strategies and switch to the regional one. “The aim is for the region to invest in econo- Workers in a Kenya factory that makes clothes for export. Picture: File the “gains on transfer of securities listed in any securities exchange approved under the Capital Markets Act.” As a result stockbrokers are not sure whether the fee should be imposed on the gains made from the transfer of securities or on the value of the transaction. The Bill gives the Cabinet Secre- tary power to alter and introduce new taxes in a bid to raise revenues to finance government spending. The Bill is also not clear on when the new levy should come into effect and whether the tax should be collected by the stockbrokers themselves or by the custodian banks who are said to control more than 50 per cent of the business. The stockbrokers are also seeking clarification as to whether unlisted, private and over-the-counter (OTC) share transfers will still be charged five per cent capital gains tax. The capital gains tax imposed by The amount Kenya Revenue Authority said had been collected on capital gains tax by the end of last week governments across Africa has been identified by experts as one of the obstacles to growth of the equities, debt and real-estate sectors. Kenya reintroduced capital gains tax for the first time in nearly 30 years at the rate of five cent on the sale of stocks, bonds and properties. However, its implementation BUSINESS JULY 11-17,2015 Libya to inject $65m into Uganda Telecom By HALIMA ABDALLAH Special Correspondent UGANDA TELECOM Ltd’s prospects are looking up after principal stockholders LAP Green Networks and the Ugandan government agreed to a bailout package that will see the Libyan government inject $65 million into the telco in the next 60 days. The commitment came after DISCREPANCY In his budget speech on June 11, Kenya’s Cabinet Secretary for National Treasury Henry Rotich removed the five per cent tax on capital gains arising from the sale of shares and instead introduced a 0.3 per cent withholding tax on the transaction values of the shares in a bid to boost activities in the capital markets. The Finance Bill 2015, however, proposes to amend the Income Tax Act and impose the tax on the “gains on transfer of securities listed in any securities exchange approved under the Capital Markets Act.” has been met with resistance, with concerns that the tax could hurt the Nairobi Securities Exchange and choke the booming property market. Shares listed at the Rwanda Stock Exchange and sold are exempted from tax. In Uganda, a capital gains tax of 30 per cent is applicable on business assets only. In Tanzania, capital gains are treated as normal business income for companies and taxed at the standard corporate tax rate of 30 per cent. Region to expo≥t p≥oducts unde≥ Agoa as a bloc mies of scale to supply the US market,” said Mr Kiiru adding, “It will reduce the cost of exporting to the US, especially on transport and at the same time save time for exporters.” A Kenyan con- sultancy company, Pinnacle Development, has been tasked with formulating the EAC joint strategy. Robert Chutha, executive director of Pinnacle Development Consultants, said the regional strategy will be guided by the country-specific strategies, EAC value chains, regional industrialisation strategy and input from the stakeholders in the export industry. The US Congress last month voted to extend the Agoa pact by 10 years. It will be renewed in October immediately after the expiry of the current agreement at the end of September. The renewal and extension of the Agoa pe- riod is expected to give African countries ample time to build competitive capacity in the global market. The agreement gives preferential market ac- cess to 39 countries in sub-Saharan Africa including all the East African countries to export a wide range of products to the US. The agreement allows African countries to export more than 6,000 products to the US duty free. two days of talks in Kampala last week, attended by Libyan Minister of Foreign Affairs Mohamed Al-Dairi, Ugandan Junior Finance Minister Aston Kajara, UTL board chair Stephen Kaboyo and officials of LAP Green. “The majority shareholder is expected to contribute $65 million to help UTL remain operational in terms of upgrading the network and settling liabilities,” Mr Kaboyo told The EastAfrican. According to findings by sector regulator Uganda Communications Commission early this year, as of December 31, 2013, UTL’s liabilities topped Ush366 billion ($120.5 million) against total assets worth Ush220 billion ($72.5 million). Shareholders LAP Green is the majority shareholder, owning a 69 per cent stake of UTL, with the Uganda government owning the remaining 31 per cent stake. Last week’s meeting followed threats by the Uganda Communications Commission to cancel UTL’s licence, citing the telco’s inability to maintain a sound liquidity status and failure to meet licence obligations. UTL has been on the decline since 2007, with its market share dropping from about 30 per cent to just under six per cent today. “We have agreed that within the next 60 days, a rescue plan should be worked out so that the company can be turned around,” said Mr Kajara. It will, however, be an uphill task for UTL to leapfrog the technology gap because while its competitors have upgraded to fourth generation networks and data play, UTL continues to rely on a second generation network. A significant portion of UTL’s liabilities stem from pending interconnection fees to competitors who have secured court orders against the operator. While UTL was the focus of last week’s meetings, the Libyan delegation also used the opportunity to discuss the fate of other Libyanowned businesses in Uganda such as Lap Textile Company and the National Housing and Construction Company.
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