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Capital markets jittery about tax

By By FRANKLINE SUNDAY | June 19th 2013


Kenyan investors are uneasy about the move by the Treasury to re-introduce the Capital Gains Tax in the securities market.

Last Thursday, National Treasury Cabinet Secretary Henry Rotich said his ministry was reviewing the Capital Gains Tax under the Income Tax Act to help raise funds for the Government’s Sh1.6 trillion expenditure plan.

“This will allow wealthier members of our society to also make a token contribution toward our national development agenda,” Mr Rotich said while reading the first Jubilee government’s Budget Statement to Parliament.

The news has since sent shocks through the capital markets. The value of investor wealth in the country’s securities market has been on a downward trend over the past week, which industry analysts attribute to the planned re-introduction of the Capital Gains Tax.

Investors at the Nairobi Securities Exchange have lost up to Sh97 billion in value over the last week, with the 20-Share Index yesterday closing at 4,761, a drop of 124 points from June 10.

“The Kenyan market is one of the best performing in the world, and last year we saw a more than 50 per cent growth,” Aly Khan Sachu, a securities market analyst with Rich Management, said at a Deloitte East Africa post-Budget event.

“However, over the last 10 days, we have been seeing a drastic fall as investors reacted to the proposed re-introduction of the Capital Gains Tax, and we are now down by between 6 to 6.5 per cent compared to last week.”

The tax, if re-introduced, will see KRA dip into the lucrative real estate and capital markets — two sectors of the economy with massive capital flow.

The proposal to revive Capital Gains Tax is not new. It was proposed in Parliament last year by the then Finance Minister Njeru Githae, but was stalled by the winding up of the 10th Parliament.

Capital Gains Tax was suspended in 1984, and at the time, a 10 per cent levy was imposed on property while 7.5 per cent tax was collectible on the value of shares held.

“We are a fairly small and growing market such that the value of our transactions do not merit an introduction of a tax on securities,” Samuel Gichohi, a business development manager at NIC Bank, said, adding that the transaction fees that are in place are enough.

“Capital Gains Tax is well placed for real estate and mining because these are high-value and well-grounded sectors.”

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