Treasury’s new tax plans shakes investor market

• Tax experts said that price reviews were yet to take place as they were introduced after the budget reading. Those introduced in the budget statement take effect immediately.

Confusion over recent tax measures spelt out by the Treasury to plug a Sh40 billion deficit has left investors’ strategic plans in limbo.

Finance minister Njeru Githae introduced a 10 per cent excise duty on mobile money commissions and alcoholic drinks which are yet to take effect after the President declined to sign the Finance Bill because MPs had awarded themselves a hefty send-off package that would have cost tax payers billions of shillings.

Companies in the affected sectors are yet to know how to react to the taxes but it is expected that they will eventually pass the extra burden to consumers.

“As investors, stability in policy-making is key in planning our future investment programmes and a move like this will impact negatively on our plans that are already in place,” said Madhur Taneja, yuMobile country manager, of the belated taxes.

Safaricom, which is the biggest player in mobile money transfer through its product M-Pesa, said that it was still studying the full implications of the proposed taxes but warned that they could hurt the impact of mobile money on the economy.

“We need to ensure that as a nation we do not lose the momentum we have achieved in the development of mobile money and its positive impact on the economy as a whole,” said Safaricom corporate affairs director Nzioka Waita.

Banks offering money transfer services, riding on the telecoms platform will also see their tax liability go up. Mr Githae hopes to raise Sh4.5 billion from taxing fees charged for money transfers by mobile service providers, money transfer agencies and banks.

Beer companies which had breathed a sigh of relief after the initial budget statement in June spared them of new taxes were also roped in with the introduction of in-factory excise tax management system.

The Treasury will give the Kenya Revenue Authority Sh500 million to implement the system from which it expects to collect Sh3.5 billion.
“Business planning process takes into account existing tax rates and other economic indicators. When these indicators change, they disrupt key business forecasts,” said East African Breweries Limited Group corporate relations director Brenda Mbithi.

She warned that introduction of taxes would affect the retail prices and such increments could see financially burdened drinkers turn to cheap illicit brews.
Mr Githae had sought to assure the public that the taxes would not be passed on but the mobile phone service providers are already considering price changes.

“When all things are considered, the tax burden will have to be borne either by our shareholders — of which government represents 35 per cent — or by our customers,” said Mr Waita.

Mr Taneja said: “If the proposal was to be implemented the consumers will be worst hit as we will be unable to offer affordable mobile services such as the sending money for free that we currently offer our subscribers.”
Tax experts said that price reviews were yet to take place as they were introduced after the budget reading. Those introduced in the budget statement take effect immediately.
“In this case they were special amendments to the Finance Bill which come to effect when signed by the President,” said Ashif Kassim, a managing partner at audit firm RSM Ashvir.

With the MPs on recess until November 20, the affected firms have time to consult with ministry but it is unlikely there will be major changes.

gngigi@ke.nationmedia.com