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Capital Markets

Gems companies to lose tax amnesty on delisting

 George Theobald
Flame Tree Group chairman George Theobald during the listing of the firm on the Growth and Enterprise Market Segment on November 6, 2014. FILE PHOTO | NMG 

Small firms that receive a tax penalty amnesty after listing on the Nairobi Securities Exchange (NSE) growth and enterprise segment will lose the immunity should they delist within five years, the Treasury says in the Finance Bill 2019.

The Growth and Enterprise Market Segment (Gems) tax amnesty will be in place for the next three years only, in a move meant to boost listings at the bourse in the short term.

Treasury Secretary Henry Rotich announced in this year’s budget the amnesty on penalties and interest on any outstanding tax for the two years prior to the listing.

“A company that delists from the exchange in which it is listed before the expiry of five years from the date of listing shall be assessed for all taxes, penalties or interest for the years it was in operation prior to listing,” reads the Finance Bill.

The Gems segment has struggled to attract listings since it was introduced in July 2013 to attract family firms to go public through the NSE but many potential applicants have been reluctant to open up to increased scrutiny of their books.

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“Many SMEs (have) struggled to meet the stringent listing requirements under Gems, specifically the requirement to be fully-tax compliant prior to listing,” said consultancy firm KPMG in a budget review brief.

So far just five companies have listed on the segment in the six years it has been in existence.

Only Flame Tree Group #ticker:FTGH —a fast-moving consumer goods (FMCG) company—remains profitable among them, indicating the risks involved in such listings.

Shoe vendor Nairobi Business Ventures #ticker:NBV and real-estate developer Home Afrika #ticker:HAFR have reported losses amid tough operating environments in irrespective industries, while the rarely traded Kurwitu Ventures #ticker:KURV remains largely inactive as an investment firm.

Atlas African Industries, which listed in December 2014, was delisted from the NSE in April after it went for more than three years without publishing its financials.

It had also ceased to exist as a going concern after being struck off the companies register under the Guernsey laws where it was domiciled.

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