The Government has made it possible for retail investors to buy into government papers with as little as Sh3,000 via mobile phones. The move likely to boost liquidity in the capital markets.
Treasury Cabinet Secretary Henry Rotich said starting next month, Treasury will launch the Treasury Mobile Direct Programme which will kick off a new chapter in the way the government raises capital.
“The launch of M-Akiba bond will allow Kenyans to purchase Government Securities directly from the comfort of their mobile phones with a minimum investment of only Sh 3,000.00 compared to the current minimum of Sh 50,000.00,” stated Rotich during the budget reading in Parliament on Thursday last week.
“This will allow Kenyans to enjoy significantly higher interest rates on government securities compared to bank deposits, through a convenient platform and with a low entry threshold.” Kenya’s infrastructure-driven growth has seen the Government kick start several capital intensive projects on roads, port, rail and energy.
The burden of financing these long-term projects has forced the Government to turn to external sources of finance and the private sector in order to limit the tax burden on Kenyans.
Infrastructure projects
Analysts have however warned that the Government needs to be careful in raising the money to fund capital infrastructure projects, particularly when going to the debt market. “In the recent past, the Government issued infrastructure bonds (IFBs) to finance specific projects in the roads, energy, water and irrigation sectors,” explained Joseph Oyongo, a tax manager at Deloitte East Africa. “
“This move was a retreat from the Government’s normal way of fundraising in the local capital markets, which traditionally had been for a general purpose, with no specific financing being targeted at the time of raising funds.”
Mr Oyongo observes that Kenyans who have bought into IFBs did so under the assumption that any interest or discount earned would be exempt from income tax. However, grey areas in the income tax legislation could potentially give local investors a raw deal, particularly when using borrowed funds as is common among retail investors to invest in the IFBs.
“According to the income tax legislation, any expenses incurred to earn tax-exempt income would not be allowable for tax purposes,” explains Oyongo. “This is an area that was overlooked by the drafters of the prospectuses and in the recent past many taxpayers in Kenya have fallen into the wrong hands of the taxman.”