Business owners taking firms public via a stock market listing will have to cede at least a 40 per cent stake to qualify for a lower corporate tax, according to a new less generous Income Tax Bill.
The draft bill says those listing the 40 per cent of shares will get to pay 25 per cent corporate tax for five years, compared to 30 to 35 per cent for other companies.
Under the existing law that the Treasury wants to repeal, companies listing 40 per cent of issued shares get an incentive of paying 20 per cent in corporate tax for five years.
Those listing 30 per cent stake get to pay 25 per cent tax, similar to firm’s listing via introduction.
The amendments therefore collapse the different tax incentives into one, potentially making listing by family-owned firms less attractive for the owners who would like to retain a greater degree of control over companies.
“There is no tax advantage in the new stipulation, especially at a time when we have seen firms delisting from the market. In a way it is taking away incentive to list,” said ABC Capital corporate finance manager Johnson Nderi.
The Capital Markets Authority (CMA) had not responded to Business Daily queries on the new proposals by the time of going to press. It has, however, been calling for additional tax incentives to entice firms to list.
The Nairobi Securities Exchange (NSE) #ticker:NSE has gone through an IPO drought in recent years, with only two (the NSE self-listing and the Stanlib I-Reit) in the last six years.
Many of the smaller firms that have come into the market in the last six years have opted to list by introduction, which automatically gave them the tax incentive while allowing the owners of some, like Flame Tree Group and Nairobi Business Ventures, to sell just 15 per cent stakes to the public each and retain the lion’s share of the issued shares.
Mr Nderi added that the stipulation in the law of listing 40 per cent rather than maintaining a free float of a similar size has introduced room for different interpretations of the law, given that the business owners can argue that the shares they remain with are also listed in the market.