Why stockbrokers shelved threat to stop Nairobi Securities Exchange trade

It took the intervention of officials at the Capital Markets Authority (CMA) to thwart a planned boycott of trading at the Nairobi Securities Exchange (NSE) by stockbrokers.

In an emergency meeting that lasted most of Thursday night, CMA prevailed upon officials of the lobby Kenya Association of Stockbrokers and Investment Banks (KASIB), to abandon their plans.

The next morning, CMA and stockbrokers were locked up in a closed door meeting with the Kenya Revenue Authority (KRA) in a bid to resolve the dispute concerning how to collect Capital Gains Tax on sale and transfer of shares at the bourse.

Capital markets

KASIB then made reference to an earlier communiqué relating to discussions at a council meeting on February 19. “Following consultations, and in the interest of maintaining the sanctity and stability of the capital markets in Kenya, the Council of KASIB has further resolved that they shall not suspend trading services and that the Exchange shall operate as normal on February 20, 2015. The Council of KASIB continues to monitor developments,” said Willie Njoroge, Chief Executive Officer- KASIB.

While details were scanty, it was clear the CMA had reached a deal with stockbrokers and that an alternative mechanism for collecting the tax was being worked out as late as yesterday afternoon. “It is not that stockbrokers have refused to collect this tax from their clients. Since they have no legal basis to do so, there is a fear that at attempts by brokers to deduct the tax will attract all manner of law suits and litigation from clients seeking for damages,” said John Kirimi, Managing Director, Sterling Investment Bank.

At present, there is confusion between the Attorney General (AG) and Kenya Revenue Authority (KRA) on the commencement date for the Capital Gains Tax, with each reading from a different script.

While the AG submission in court is that this tax should be on gains accrued after January 1st, 2015 - a legal position that appears cannot be challenged, KRA officials have a different interpretation. This is that the tax should be on any gains made from the date of the original acquisition. “What this means is that investors who bought Kenya Breweries shares for 20 cents in 1954 will still pay the tax when disposing off the same, now selling at Sh344.00,” said Kirimi.

But if the said investor cannot accurately remember when they bought their shares, the highest price between 1998 and 2004 will be used for purposes of computing the selling price, minus the cost and then charging 5 per cent on the balance.

While the tax is net of costs, brokers maintain that they do not have this information including cost of travel when an investor from upcountry comes to the city to sell off their shares. “It is administratively difficult to administer this tax and the thinking is that KRA may eventually shift the responsibility of paying it to individual investors,” said Kirimi.