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Regulator backs value added tax exclusion for Reit

Markets Authority CEO Paul Muthaura addresses the media at a past workshop on Real Estate Investment Trusts in Nairobi. FILE PHOTO | DIANA NGILA | NMG
Markets Authority CEO Paul Muthaura addresses the media at a past workshop on Real Estate Investment Trusts in Nairobi. FILE PHOTO | DIANA NGILA | NMG 

The Capital Markets Authority (CMA) has backed the exemption of Real Estate Investment Trusts (Reits) from value added tax (VAT) to boost investor appetite.

VAT accrues to both rent and professional services.

The regulator is confident taxation incentives will spur interest in the product that opens up the property market for retail investors.

the tax neutrality issues for Reits have now been resolved with the recent adoption of the proposal to amend the VAT Act to exempt from VAT the transactions related to transfer of assets into Real Estate Investment Trusts and Asset Backed Securities (ABS) through the Finance Act 2017,” CMA said in a statement.

The relief from VAT, charged at a standard 16 per cent, follows exemption of Reits-related asset transfers from the 10 per cent stamp duty and capital gains tax in 2015, charged at five per cent of net proceeds from sale of land and building.

Stanlib #ticker:FAHR , which was the first to test the Reits market in November 2015, raised Sh3.6 billion against a target of Sh12.5 billion, representing a 28.8 per cent subscription.

Minimum investment in the Stanlib’s Fahari I-Reit’s initial public offering, which was on sale between October 22 and November 18, 2015, was Sh20,000 in 1,000 units.

Analysts attribute the underperformance on competition from Treasury bills that were offering more than 20 per cent in returns following increased appetite for cash after revenue collection fell short of target. Others blamed the under-subscription on little awareness on the product by the investors.

Fahari I-Reit value has fallen by more than a third since listing on the Nairobi Securities Exchange in November 2015 at a debut price of Sh20. The I-Reit was on Tuesday valued at Sh12.40 per piece – 3.87 per cent drop day-on-day and 35.5 per cent lower than debut price.

Fusion Capital’s development Reit last August, also a first, managed to raise Sh873 million against Sh2.3 billion target and failed to hit the 50 per cent threshold set by the CMA.

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