Investment banks, brokers and fund managers have warned the proposed change in the law would likely drive foreign investors.
The proposed 0.05 per cent excise duty is to be applied to money transferred by banks, mobile money transfers and other financial service providers for transactions of Sh500,000 and above.
It will affect all payments including those to suppliers, direct debits and online transfers, local and foreign currency transfers both within a bank and even remittances beyond borders as well as interbank transactions, securities purchases or sale and other investment activities.
Returns on pension assets and prices of shares on the Nairobi Securities Exchange (NSE) will fall if a proposed law to charge tax on movement of cash in banks is implemented.
Investment banks, brokers and fund managers have warned the proposed change in the law would likely drive foreign investors – who contribute an average of 70 per cent of daily turnover – away to the detriment of trading and price discovery at the NSE.
In a letter addressed to the Treasury cabinet secretary Henry Rotich, the financial markets players said there was a high chance that private savings could fall and liquidity in the capital markets shrink.
The joint letter was signed by the NSE chief executive Geoffrey Odundo, chair of the Fund Managers Association Einstein Kihanda, chair of the Association of Collective Investment Schemes Ken Kaniu and CEO of the Kenya Association of Stockbrokers and Investment Banks Willie Njoroge.
“While there were good and noble intentions in introducing the tax…there were certain potential debilitating downstream effects on the economy that this tax is likely to instigate…there will be a significant reduction in liquidity of key capital market assets such as Treasury bills, Treasury bonds and equities,” the letter said.
The proposed 0.05 per cent excise duty is to be applied to money transferred by banks, mobile money transfers and other financial service providers for transactions of Sh500,000 and above.
It will affect all payments including those to suppliers, direct debits and online transfers, local and foreign currency transfers both within a bank and even remittances beyond borders as well as interbank transactions, securities purchases or sale and other investment activities.
They noted the tax would force a reduction in trading and investment activity and reduce institutional and professional investor participation in securities markets.
“Investment funds such as pension funds shall witness reduced trading and investment thereby reducing the returns and depressing the growth in these funds,” the letter added.
“The proposed tax may also result in a high level of attrition of foreign investors to more cost-effective markets which will have an adverse impact to the trading at the NSE given that this segment contributes an average of 70 per cent of daily trading volumes. The resultant effect will be a depressed market and declining market capitalisation,” said the capital market players.
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