Finance Bill sails through the second reading
18 June 2023
Controversial Finance Bill Clears second reading in Parliament
Members of Parliament (MPs) voted to adopt the controversial Finance Bill during a session in the National Assembly on Wednesday. The bill, which introduces new taxes and amends existing ones, has attracted significant attention and debate throughout its legislative journey.
Key provisions of the Finance Bill
The proposed increase in income tax for Kenyans earning between Ksh500,000 ($3,580) and Ksh799,999 ($5,725) per month. Under the bill, their income tax rate would rise from 30% to 32.5%. Additionally, individuals with monthly salaries exceeding Ksh800,000 ($5,727) would be subject to a new income tax rate of 35%,
The proposed introduction of a 1.5% housing levy on salaried employees. If implemented, this levy would directly impact Kenyans' monthly earnings and has been a topic of concern for many citizens.
The proposed tax increase on petroleum products, with the tax rate jumping from 8% to 16%. This hike is expected to have a knock-on effect on the cost of fuel and potentially impact the overall cost of living for Kenyans.
The government intends to impose a 5% tax on the monthly earnings of digital content creators, which will be collected and remitted to the government.
The introduction of changes to turnover tax, increasing it from the current 1% to 3%.
Digital assets will be subject to a 3% tax, while repatriated profits will face a 15% tax.
CAPITAL MARKETS
1. Oversubscription of Infrastructure Bond Alleviates Government Cash Crunch Concerns
The seven-year infrastructure bond issued by the Kenyan government has experienced an extraordinary response, nearly quadrupling its subscription rate and easing cash crunch concerns just days before the end of the 2022/23 fiscal year.
The tax-free bond, initially aiming to raise Ksh 60 billion, attracted Ksh 220.5 billion in investor bids, showcasing an unprecedented performance rate of 367.5% This outcome, as per Central Bank of Kenya (CBK) data, surpasses any previously issued infrastructure bond at primary issuance, dating back to October 2014.
The overwhelming response to the infrastructure bond issuance has provided the government with a much-needed fiscal boost. The proceeds from the bond will be allocated towards new borrowing and redemptions, covering financial obligations for the current fiscal year up until June 30. Of the total subscription amount, Sh174.2 billion will be utilized for new borrowing, while Sh39.2 billion will cover redemption costs.
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2. Kenya to Launch Electronic Trading Platform for Government Securities
The Central Bank of Kenya (CBK) announced the upcoming launch of an electronic over-the-counter (OTC) trading platform for government securities. The platform will allow investors to conveniently buy and sell Treasury bills and bonds online. Outgoing CBK governor, Patrick Njoroge, revealed that the modernized Central Securities Depository (CSD) would be operational within the next month, marking a significant milestone in the country's financial infrastructure.
The initiative to establish an electronic OTC secondary market platform for government securities began in September 2020 and was initially slated for completion in June 2022. However, due to various factors, including the COVID-19 pandemic, the timeline was extended. Despite the delays, the CBK and its partners, with funding from the World Bank Group, remained committed to delivering a robust and efficient system.
Dr. Njoroge highlighted that the new platform would facilitate the mobilization of more than Ksh 400 billion annually, which is currently wired back to Kenya by Kenyans living abroad, into government debt. Currently, a significant portion of remittances is utilized for household expenses such as healthcare, education, rent, and utilities. The electronic trading platform aims to redirect a substantial portion of these remittances into the government securities market, providing an opportunity for Kenyans abroad to invest in the country's development.
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TAX
Kenya Revenue Authority Seeks Court Order to Freeze Chinese Companies' Bank Accounts Amid Alleged Tax Evasion
The Kenya Revenue Authority (KRA) took legal action by filing a petition in court to freeze the funds held in three bank accounts belonging to multiple Chinese companies. The move comes after allegations of tax evasion amounting to more than Ksh 1 billion over the past three financial years.
According to court documents filed by the tax authority, four of the companies in question were incorporated for the purpose of importing goods from China. However, there is no evidence to support these importations, despite substantial amounts of money being received by the firms and subsequently wired to China.
The KRA has requested the High Court to order the preservation of funds held at Equity Bank, I&M Bank, and Eco Bank under the names of Hilalium & Sons (UR Home) Ltd, Weng Feng Trading Ltd, Youngchung Company Ltd, Can Feng, and Riba Will Trading Ltd.The taxman states in the court filings, "From the pleadings by the applicant herein, there is evidence that taxes amounting to Sh1,051,134,858 have been evaded on account of income tax by the interested party herein. It is, therefore, in the wider public interest that the assessment of the taxes and recovery thereof must be secured.
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ACQUISITIONS
Equity Group to acquire a controlling stake in a Rwandan bank
The acquisition of a 91.9% stake in Compagnie Générale De Banque Plc (Cogebanque) by Equity Group comes with a price tag of RWF54.68 billion (approximately Ksh 6.67 billion), valuing the Rwandan bank at Ksh 7.26 billion.
The acquisition will involve the purchase of shares from several entities, including the Government of Rwanda, Rwanda Social Security Board, Sanlam Vie Plc, and Ms. Judith Mugirasoni. The ultimate plan for Equity Group is to make an offer for the remaining shares in the bank.
James Mwangi, the chief executive at Equity Group, expressed the strategic importance of the acquisition. He stated,
"By acquiring Cogebanque, Equity Group will be able to expand its footprint and consolidate its position in Rwanda."
This move is seen as a significant step for Equity Group in broadening its presence and influence in the East African market.
Note:
This is the second attempt by Equity Group to purchase a bank in Rwanda.
The previous deal, which involved the acquisition of a 62% share capital of Rwanda's Banque Populaire du Rwanda from Atlas Mara, fell through.
The new agreement with Cogebanque presents a fresh opportunity for Equity Group to establish a strong foothold in the Rwandan banking sector.
A trend in the Banking sector?
The latest data from the Central Bank of Kenya reveals a remarkable surge in net profits for Kenyan banks operating outside the country. In 2022, these banks recorded a net profit of Ksh 32.51 billion, nearly double the previous year's figure of Ksh 17.23 billion. This impressive growth is indicative of the successful expansion endeavors undertaken by Kenyan banks, as their loan books outside Kenya expanded to Ksh 725.8 billion from Ksh 510.3 billion.
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MINING
Kenya's Mineral Exploration Freeze Hinders Investments, Digital Mapping Aims to Revitalize Sector
Kenya's mining sector has faced significant challenges in recent years as the government halted the issuance of exploration licenses in 2019 and failed to renew licenses for companies since 2015. This exploration freeze has led to a slowdown in investments and hindered the sector's potential contribution to the country's gross domestic product (GDP). However, upcoming initiatives, such as the inaugural mining week and a national digital mineral map, aims to revitalize the industry and attract much-needed investments.
The decision to pause the issuance of exploration licenses in 2019 was part of a strategy by the Kenyan government to conduct an airborne survey and update the country's mineral resource mapping.
The lack of mineral exploration permits has significantly impacted the sector's contribution to Kenya's GDP.
Over the past five years, the mining sector's contribution has remained stagnant, ranging between 0.7 and 2.1%. With the potential for significant mineral wealth, it is evident that the sector's underperformance is not reflective of its true capabilities.
To address these challenges and rejuvenate the mining sector, the Kenya Chamber of Mines is set to host the inaugural mining week from July 17 to 23. This event will bring together private and government stakeholders to discuss sector-wide reforms and pave the way for future growth. Click here to read the full article.
WHAT YOU MUST HAVE MISSED
The National Assembly has opened public participation for Conflict of Interest Bill No.12 of 2023 and the Privatisation Bill No.22 of 2023.
The National Assembly opened up public participation for two bills that are integral to the conditions tied to Kenya's Ksh 139 billion soft loan obtained from the World Bank on May 30th. The Conflict of Interest Bill No.12 of 2023 and the Privatisation Bill No.22 of 2023 are now open for comments until June 26, as stated in a notice from the National Assembly.
These bills have not only played a significant role in securing the World Bank loan but have also been crucial to Kenya's recent financial engagements with the International Monetary Fund (IMF). The loan was obtained by Kenya to provide budget support for the financial year ending this month, following the successful conclusion of the fifth review of the ongoing program with the IMF. This review paved the way for an additional drawdown of Sh57.1 billion by the Exchequer.
Nigerian-owned Fintech Firm's Bank Accounts and Mobile Money Wallets Frozen Amidst Money Laundering Allegations
The High Court ordered the freezing of 45 bank accounts and 10 mobile money wallets belonging to Flutterwave Payments Technology, a Nigerian-owned financial technology firm. The court's decision came in response to allegations of multiple money laundering activities against the company. As the legal battle unfolds, a growing number of individuals and companies are lining up to recover billions of dollars that Flutterwave allegedly stashed away in local banks.
Saccos Regulator Seeks Changes to Safeguard Savers' Deposits
In a move aimed at enhancing the stability of Kenya's savings and credit cooperatives (Saccos) sector, the Sacco Societies Regulatory Authority (Sasra) is pushing for changes to the existing legislation. The proposed amendment to the Sacco Societies Act, 2008 would introduce a framework for appointing trustees to oversee a Deposit Guarantee Fund (DGF) specifically designed to protect depositors from potential losses on their accumulated savings, which currently amount to over Sh600 billion.
Speaking on Thursday, Treasury Cabinet Secretary Njuguna Ndung’u emphasized the urgency of such reforms, stating that they would mark a significant milestone in safeguarding depositors' interests.