The Treasury has exempted France Telecom from paying tax on interest the French firm earns from loans advanced to Telkom Kenya.
Former Finance minister Njeru Githae offered the tax concession to France Telkom, which owns 60 per cent of Telkom Kenya, and the government on interest paid to loans advanced to the Kenyan operators before December.
The exception is contained in a Kenya Gazette notice dated April 12, which came out just a day after President Uhuru Kenyatta disbanded the Cabinet following the March 4 General Election.
The French firm lent Telkom Kenya Sh5.1 billion and the government, which owns 40 per cent of the firm, Sh2.5 billion in December.
“The Minister for Finance directs that interest payable or accrued on loans owed to Messrs. France Telecom S.A. and its subsidiaries and the Government of Kenya for the year ending 31st December, 2012 shall be exempt from tax,” said Mr Githae in the gazette notice.
President Kenyatta has nominated Henry Rotich to replace Mr. Githae.
The Business Daily failed to establish the interest rate attached to the shareholders loans advanced after Mickael Ghossein, the CEO of Telkom Kenya, declined to respond to the matter. However, analysts put the charge at between 10 and 12 per cent.
“I cannot comment. Only the shareholders can do,” said Mr Ghossein. France Telecom also failed to respond to our email questions.
At 10 per cent, France Telecom earns interest of half a billion shillings annually, which translates to an income tax charge of about Sh150 million. The government had an agreement on December 21 with France Telecom to inject additional cash and write off shareholder loans, which was aimed at easing the operator’s debt burden that currently consumes nearly half of its annual revenues.
This saw the Treasury convert a Sh4 billion shareholder loan into shares as France Telecom swapped its Sh15 billion debt for equity.
The agreement effectively cut Treasury’s stake in Telkom Kenya to 40 per cent from 49 per cent and raised France Telecom’s to 60 per cent.
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Note: The results are not exact but very close to the actual.
