Fears over Robin Hood tax weakens capital market

An employee makes notes in front of an electronic stock information screen inside the Nairobi Securities Exchange Ltd. [Photo: Riccardo Gangale/Bloomberg]

The Robin Hood tax proposed by Treasury has caused a decline in capital market trading as investors fear they will lose money from multiple ticket transactions.

Capital Markets Authority (CMA) Chief Executive Paul Muthaura said investors have postponed decisions to get a clarification on the law that will tax any transaction above Sh500,000 at 0.05 per cent.

He said that just before the law kicked in, there was anticipation that litigation would be pursued to stop it, which was subsequently filed by the Kenya Bankers Association last month.

“The nature of the business is that you have multiple legs of transactions,” Mr Muthaura told The Standard.

“For instance, a collective investment firm or a pension firm wants to buy a Government bond; they will need to call the money, move it to a custodian then invest it and incur the transaction costs on each level,” he said.

Stanbic Bank Regional Economist, East Africa, Jibran Qureishi, said the new tax should be re-thought and refined, otherwise it would hit the markets hard, given that there would be charges even when a transaction does not go past the bidding stage.

Layers of transactions

“A fund manager will have two to three layers of transactions moving money from various custodial accounts before bidding for a T-bill, which may still be rejected, yet he has incurred the costs on the big value moved,” he said.

Barclays Bank Kenya Chief Executive Jeremy Awori said there was an immediate drop in transactions above Sh500,000 and a massive impact in the interbank market.

“We understand that the Government needs to raise revenues, but such moves have an impact,” he said.

Muthaura said Treasury should consult before instituting legislation, adding that since 2013 the Cabinet secretary had made policies that have been detrimental in the market.

“We have had the capital gains tax, interference with bank resolutions, debt risk, uncertainty over the financial sector regulator and now we have the Financial Conduct Authority,” he said.

The Kenyan capital market largely underperformed for the first half of the year following global risk over trade squabbles and rising interest rates in the US.

Decreased

Composite indicators such as the Nairobi Securities Exchange (NSE) All Share and NSE 20 Share indices recorded decreases of 8.82 per cent and 14.55 per cent, closing the second quarter at 174.63 points and 3,285.73 points respectively.

Into the second half of the year, Mr Qureishi said the bourse may rebound if the rate cap law is struck out as this would boost the valuation of the 11 banking counters that make up a huge chunk of total market capitalisation.

CMA Regulatory Policy and Strategy Director Luke Ombara said there had also been efforts to incentivise the sector, including amending the capital markets law.