Capital Markets

Dyer & Blair says NSE to shrug off capital gains tax

NSE

An investor at the Nairobi Securities Exchange. PHOTO | FILE

The re-introduced capital gains tax is unlikely to decelerate the Nairobi Securities Exchange (NSE), Dyer and Blair Investment Bank has said.

Analysts at the broker said the NSE is still attractive to investors since the five per cent rate is lower compared to other African markets like Zimbabwe and Zambia that have a 35 per cent rate.

A report by the bank on the regional economy says despite uncertainty on how the tax will be applied in Kenya and whether it will affect foreign investors who account for most of the trading, the rate is low enough to be tolerated by investors.

“We maintain that from a private investor point of view, the five per cent rate is fairly competitive and unlikely to ward off would-be investors from the Kenyan market,” said Dyer and Blair.

President Kenyatta signed the Finance Bill into law allowing taxing of gains from the sale of shares, property and oil and gas blocks from January 1, 2015.

READ: Kenya's president approves 5pc capital gains tax

But a stockbroker lobby has said the five per cent rate may turn off foreign investors whose active participation has lifted prices of select stocks.

The Kenya Association of Stockbrokers and Investment Banks (Kasib) said the tax is discouraging investors and may make NSE lose its competitive edge.

“Nigeria has a 10 per cent capital gains tax but the capital markets are excluded,” said Kasib chief executive Willie Njoroge.

The Kenya rate is lower than other markets in the region such as Uganda with 30 per cent and Tanzania with a 20 per cent rate. South Africa, like Nigeria, has a 10 per cent rate.

Mr Njoroge added that its calculation could bring more challenges since the base year is yet to be set.

Tax experts said between now and January 1, Kenya Revenue Authority (KRA) and the Treasury have to craft guidelines that do not slow down industries or increase tax avoidance.

Martin Kisuu of Taxwise Consulting says an index was needed from which calculations on how much is to be paid can be based.

“There has to be a threshold value that has to be determined by January 1,” Mr Kisuu told the Business Daily.

Mr Kisuu said there is the threat of unnecessary avoidance between now and the effective date as some business look into how to reduce liability.

Financial consultancy KPMG said officials have to come up with laws on how much tax oil, gas and mineral companies pay on selling minority interests in blocks.