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Capital Markets

Shares cost up as brokers charge 14pc VAT on fees

Nairobi Securities Exchange
A Nairobi Securities Exchange staff on the trading floor in 2019. FILE PHOTO | NMG 

Stockbrokers have started charging the 14 percent value-added tax (VAT) on service fees and commissions after President Uhuru Kenyatta assented to the Tax Laws Amendment Act 2020 last month, raising the cost of investing in equities and securities at the NSE.

Dyer & Blair Investment Bank and ApexAfrica Capital have sent notices to clients informing them of the different fees and commissions that will be loaded with VAT.

"Going forward, for the purchase of shares the amount will include the purchase price, brokerage commissions, statutory levies plus VAT. As for the sale of shares, the proceeds will be paid net of brokerage commissions, statutory levies plus VAT," said ApexAfrica in their notice.

Jimnah Mbaru owned Dyer & Blair said all trades done after April 27, but which were not charged VAT, will have the tax computed and charged manually from investor accounts.

"Please note that the trade contract notes will be amended to reflect this VAT cost as from May 18, 2020. For prior transactions done between April 27, 2020 to May 15, 2020, the VAT will be computed manually and charged to your account," said Dyer & Blair.

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The VAT applies on a wide range of brokerage fees, including commissions on equities and bonds trades, fees on share immobilisation and pledges, private transfers, transmissions in and transfers out. Charges for activation of dormant accounts and derivatives brokerage commissions will also attract VAT.

Others include advisory fees charged for placement, initial public offerings, rights issues and takeovers.

Currently, the highest commission chargeable on equities trades is 1.78 per cent, which is applicable to amounts up to Sh100,000. Above this amount, commissions are negotiable, subject to a maximum of 1.5 per cent.

Bonds attract a commission of 0.0625 percent on amounts up to Sh50 million, with the levy on amounts above that fully negotiable.

The move to levy VAT on the brokerage fees is seen by industry players as a negative in their efforts to attract more local investor participation in the capital markets.

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