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The East African : June 2nd 2014
42 COMPLICATIONS IN TOURISM PROPOSALS Experts question tourism incentives The new incentives will ≥equi≥e changes in seve≥al existing laws to give them legal g≥ounding By SCOLA KAMAU Special Correspondent implementation of new proposals announced a week ago by President Uhuru Kenyatta to promote domestic travel and lift the troubled tourism sector which has been hit by a wave of cancellations in the wake of travel advisories by the US, UK and France. A review by consulting firms T PricewaterhouseCoopers (PwC) and Deloitte East Africa shows that the new incentives and directives will require changes in several existing laws to give them legal grounding. They, however, said the incentives have the ability to boost the tourism sector, which is under siege from rising insecurity and travel advisories, after international arrivals slumped by a third. On May 23, President Kenyatta, among other things, revoked an earlier Treasury circular restricting the public service from holding conferences and other meetings in private hotels. This is expected to open up a lucrative income stream for private hotels, as the public service is one of the biggest spenders on conference tourism. “This will have a positive impact by directing more business from the government to private hotels. However, the measure has to be seen in light of the government’s attempts to allocate more resources to development expenditure as opposed to recurrent expenditure,” said Steve Okello, partner and head of tax at PwC. “The measures being proposed by the government are admirable, but subject to further queries. For a start, there is a need for further stakeholder engagement in order to align the expectations of government with that of employers and their employees,” he said. The government’s directive with effect Many tourists have deserted Kenya due to terror threats. Picture: File from June 12 to allow corporate and business entities to pay vacation trip expenses for their staff on annual leave in Kenya and deduct such expenditures from their taxes may not work without a law in place, experts said. “Generally, for any expenses to be deductible by an employer, the expense must be incurred wholly and exclusively in the production of income. Paying for an employee’s holiday is really an expense of the employee, so for the employer to get a deduction, the law needs to be changed,” said Nikhil Hira, a tax partner at Deloitte East Africa. “ “The concern is that there is no mention of whether the employee will be taxed on the benefit. Strictly, where an employer pays an expense on behalf of an employee, then it is the benefit of the employee, which should be taxed.” The government hopes that this initiative will give at least 25,000 Kenyans a chance to go for a week’s holiday every year. But it is not yet clear, for example, if employers will be expected to actually pay the trip expenses in advance or will reimburse expenses incurred by an em- 25,000 By PETERSON THIONG’O The EastAfrican KENYA HAS been ranked as one of the three most promising emerging African markets for private banking. This segment provides banking services to wealthy individuals and their families. The New World Wealth (NWW), a consulting firm that keeps track of global wealth, put Kenya behind Ghana and Nigeria, three countries where there are growing number of super-rich individuals. The findings show that Africa is the fastest growing region for private banking globally. South Africa, mainly Johannesburg, is the hub for African private banking, with over $50 billion in assets under management. African high James Mwangi of Equity Bank, one of Kenya’s privately owned banks. Pic: File ployee. “The government should clarify that such vacation relief will not be seen as a ‘taxable benefit’ to the employee where the company claims a corporate tax deduction, otherwise it will be simply seen as giving with one hand and taking back with the other,” he said. President Kenyatta also directed that all outstanding income tax related refunds running into billions of shillings owed to the tourism industry players be paid out by Kenya Revenue Authority not later than May 29. This is expected to free up more cash in the sector for expansion. But experts have reservations on this. “I am not sure how much income tax refund is due to the players in the industry, but I cannot believe it is significant, so this measure may be superficial. The question must be that if there are refunds, can KRA actually issue them given that collection of revenue is difficult anyway?” asked Mr Hira. Other sectors, experts said, may also demand such a directive on tax refunds, further constraining the government’s budget, as KRA has to seek finances to pay up. “If the same provision is not ap- Number of Kenyans expected to go on holiday every year plied to other sectors in the economy that are similarly impacted, they may seek to demand the same treatment for reasons of equity,” said Mr Okello. THE STATISTICS Over the past two weeks, at least four countries, the US, UK, France and Australia — which are key tourist source markets for Kenya — have issued travel advisories for their nationals,Latest data by the Kenya Tourist Board show that tourism receipts in 2013 declined for the second year running, posting a 2.13 per cent drop to Ksh93.97 billion ($1.1 billion) from Ksh96.02 billion ($1.13 billion) in 2012. Last year, the number of international and domestic tourists fell 15.8 per cent to 1.5 million from 1.78 million in 2012. The tourism sector has been hurt- ing due to insecurity, a situation worsened by travel advisories. Tourism sector players are calling for immediate negotiations with the countries that issued them to reverse the travel advisories. “Even with the incentives, the industry’s performance is predicted to slump in 2014 if the government does not address the core issue — to bring back confidence to the markets both local and international. Insecurity affects all tourists whether local, regional or international,” said Waturi Matu, the East Africa Tourism Platform co-ordinator. Nai≥obi among top playe≥s in Af≥ica’s p≥ivate banking secto≥ net worth individuals (HNWIs) outside South Africa, the survey found, are increasingly keeping their funds in traditional holding centres such as the UK, Channel Islands, Switzerland and Singapore. Private banking generally involves the management of trusts, inheritance and the allocation of client funds. These institutions usually only deal with individuals with over $2 million in invest- able assets. South Africa-based banks such as Investec, Nedbank, Sanlam and Standard Bank dominate the list as the largest private banks and wealth managers, managing African assets estimated at $74.2 billion. Other players like Barclays (Absa) also control a large share of these assets. There are just over 160,000 HNWIs in Africa worth about $660 billion, said the consulting firm, adding that an estimated $120 billion of this wealth is tied up in wealth management companies. “The most promising emerging African markets for private banking are Nigeria, Ghana and Kenya. Fast growing countries such as Angola and Zambia are next on the list,” said NWW. “We estimate the African private banking market will grow by 8 per cent per annum over the next 10 years.” ax experts have pointed out possible complications in the The EastAfrican BUSINESS MAY 31 - JUNE 6, 2014 FDIs into Kenya will pass $3.5b By STEVE MBOGO Special Correspondent KENYA’S FOREIGN direct investment inflows are expected to surpass the record $3.5 billion realised in 2013. Executives from the Kenya In- vestment Authority (KenInvest) and FDI Intelligence unit of hte Financial Times said investor appetite was rising despite growing security challenges, with the ongoing infrastructure mega projects being the top attraction. Experts cite oil and gas, the hos- pitality, telecommunications and consumer sectors as the other attractions. FDI inflows recorded by the Ken- Invest totalled Ksh30 billion ($341 million) in the first quarter of 2014, new data shows. Inflows into Kenya rose to a record $3.5 billion in 2013 compared with $2.1 billion in 2012 and $1.3 billion in 2011, according to data from FDI Intelligence. “Attracting that amount of FDI in an election year is significant,” said Dr Moses Ikiara, the managing director at KenInvest. “We expect this year to be better.” Kenya is expected to continue growing its status as a regional hub for international deal hunters despite the current security challenges, seen as short term in comparisonwith the long term growth gains expected from natural resource discoveries and the improved ease of doing business. The status of Kenya as a desti- nation for FDIin Africa has grown from insignificant levels in the past decade, to second position last year after Ghana, according to data released jointly by Ernst & Young and KenInvest. The agency has an annual tar- get of attracting at $1.8billion. In the past financial year, it attracted $1.2 billion and has attracted $1.05 billion in the first three quarters of the financial year that ends on June 31. Since it is not a requirement under the law for all investors to register with KenInvest, the FDI figures are only a part of overall inflows into Kenya. In the past five years for in- stance, the communications sector drew the most FDI accounting for 17 per cent of all tracked projects between 2009 and 2013, closely followed by the financial services sector, which accounted for 14 per cent, according to FDI Intelligence. Other key sectors attracting FDI are retail and consumer products, technology and media, are mainly by investors from the UK, US and India. Over the five-year period, the UK has been the greatest source of investment into Kenya, representing 15 percent of tracked FDI. The UK doubled its share of FDI into Kenya from 11 per cent in 2009 to 23 per cent in 2013. The financial services sector ac- counted for 25 per cent of this FDI, with six separate companies undertaking investments.
May 26th 2014
June 9th 2014