CMA urges small businesses to list on exchange for lower tax

The capital markets watchdog has called upon small enterprises to take advantage of the lower corporate tax rate extended to firms listing by introduction on the Nairobi Securities Exchange (NSE).

Capital Markets Authority (CMA) chief executive Paul Muthaura told SME owners at a Top 100 forum breakfast on Wednesday that the removal of capital gains tax on listed equity transactions would also make their companies more attractive to strategic investors if they list on the small company segment of the NSE.

The same change of regulations that kicked in on January 1 will see firms listing on the NSE by introduction 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).

Listing by introduction means a firm only makes shares tradable as opposed to an IPO where firms raise funds.

“There is added incentive to list. Even as KRA tightens the tax net which broadens coverage, there is now an opportunity for SMEs to access preferential tax rates based on the level to which you have issued your share capital…it will enable you to access the reduced tax rate for between one and five years,” said Mr Muthaura.

Some of the companies that missed out the lower taxes after listing by introduction include Equity Bank, CfC Insurance Holdings, Longhorn, CIC
In the Growth and Enterprise Markets Segment (Gems), Home Afrika, Flame Tree, Atlas Development and Kurwitu Ventures were exposed to the full corporate tax since they listed before the extension of the break.

SMEs in Kenya have been slow to take up listing on the NSE even after the establishment of the Gems that has lower listing charges and a more simplified listing approval process.

Some of the challenges limiting their listing include the unwillingness by founders to relinquish control by going public, as well as a fear of the heightened scrutiny once they go public.

READ: Firms to pay a maximum of Sh30m to list on NSE

Nation Media Group chief executive Joe Muganda, however, defended the need for more stringent oversight on the affairs of listed firms, given that these firms often receive investment from the public, which calls for tighter governance structures to ensure the money is safeguarded and utilised well.

“Listed companies are held to much higher standards because of the expectation that they adhere to globally acceptable standards of governance and financial reporting.

“Scrutiny changes the behaviour of companies and forces organisations to act in a responsible manner,” said Mr Muganda.

“It is for this reason that companies are under scrutiny because the media, in playing its public interest role as a watchdog, ensures that it is a market-maker to facilitate public to make informed critical financial decisions.”

He added that the listed firms also benefit from higher visibility because of the media spotlight on listed firms.