The Capital Markets Authority (CMA) is now extending preferential tax treatment to companies listing by way of introduction as well as cross listings hoping to raise the numbers at the bourse.
Firms listing on the Nairobi Securities Exchange can now enjoy a lower corporate tax rate of 25 per cent for five years rather than pay the normal 30 per cent rate, an offer previously only enjoyed by those listing through an initial public offering (IPO).
CMA boss Paul Muthaura said the new rule that took effect on January 1, 2016 — following amendments to the Income Tax Act through the Finance Bill 2015 — is likely to attract more listings especially of SMEs.
“The benefit was previously enjoyed by companies listed through an initial public offer only,” said Mr Muthaura in an interview.
“The provision applies to securities listed on another securities exchange or that are publicly held other than as a result of an immediate preceding public offer.”
The capital markets regulator is banking on the five-year lower tax regime to spur listings on the NSE which has experienced a drought since the October 2015 Stanlib Fahari Reit public offering.
There have been nine listings by way of introduction compared to a dozen IPOs at the Nairobi bourse since the turn of the millennium.
Some of the companies which listed without an IPO and hence missed out the lower taxes include Equity Bank in 2006, CfC Insurance Holdings and TransCentury in 2011; Longhorn Publishers, CIC Insurance and Umeme the following year.
Loss-making real estate firm Home Afrika listed on NSE in 2013 by way of introduction at an offer price of Sh12 per share and the following year saw Flame Tree and sharia-complaint investment firm Kurwitu Ventures join the bourse.
Mr Muthaura reckons that the periodical tax holiday will attract small and mid-sized companies to list on the SME-targeted Growth Enterprise Market Segment, as this will reflect in a lower tax bill in the profit and loss statement.
The lower tax measure also comes as a relief to owners who may not want to cede shares to the public or do not need to raise any capital from the public through selling shares.
CMA in March slashed the cost for firms seeking to list their shares or borrow from the capital markets as part of new strategy to stimulate activity in the market.
Fees payable by issuers of IPOs, rights issues and corporate bonds are now caped at Sh30 million. Companies normally pay a fee of 0.15 per cent of the offer size to CMA when listing.
The transaction fees levied by brokers at the NSE have been reduced from 1.78 per cent to 1.76 per cent, while depository levies rose to 0.08 per cent from 0.06 per cent of deal value.
Government bonds, whose approval fees are payable at 0.075 per cent of the amount raised, have their levy capped at Sh50 million.