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Kenya dismisses concern over capital gains tax

Thursday, 20 June 2013   (0 Comments)
Posted by: Author: Duncan Miriri
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Author: Duncan Miriri (Businessday,

Kenya sought to assuage concern over a planned review of capital gains tax, saying it was too early to say what asset classes would be targeted in a measure aimed at compelling the rich to fund development.

Finance Minister Henry Rotich told legislators in his budget speech last week there would be a review of the tax, which was suspended in the 1980s, to allow the wealthy to make a token contribution to the development of the country.

Since the budget there had been speculation that the capital gains tax would affect property and gains on equity investments, but the finance ministry said plans were at an embryonic stage.

"We have not even worked out how (the tax) will be implemented, the rates or even which areas will be taxed," the Treasury’s economic secretary, Geoffrey Mwau, said on Wednesday. He also promised consultation on any measures.

Shares dropped to a 14-week low on Tuesday as investors fretted the tax plans might sap the appeal of equities. The Kenyan shilling came under pressure and was still at a 13-week low of 85.65/85 against the dollar, also reflecting concern about possible damage to the economy.

One local investor said the government had to find a balance between raising funds for development projects and supporting economic growth through private investments.

Punitive taxes

"Investors are not criminals. They should be encouraged to invest more and not to have punitive taxes that punish and discourage investments, driving investments from one country to another," Chris Kirubi, who has substantial holdings in properties and shares, said.

Mr Mwau said the Treasury expected the plan to firm up within the next six months, but rejected concern that a sales or value-added tax (VAT) law to be tabled in parliament in 2013 would sharply increase the price of basic items such as food.

The VAT bill will seek to erase distortions in current legislation, following years of piecemeal revisions that led to exemption of goods such as rice, milk, bread and wheat. Caviar, rarely found in Kenya, is also exempt.

"VAT is not about food alone. There are a lot of products ... for the rich that are exempt at the moment," Mr Mwau said.

Plans to issue a debut $1bn eurobond to fund a range of infrastructure projects, including a second port at Lamu, were on course, Mr Mwau said.

"We plan to (launch the bond) ... in the last quarter of this calendar year. So far is it the $1bn target for us.

"As much as we would like to get a bit more, we still have to worry about our external exposure," he said.

Kenya faces a large infrastructure deficit, which requires sustained expenditure of almost $4bn a year over the next decade or about 20% of gross domestic product to be able to meet its infrastructure needs, according to the Treasury.



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