Author Archives: bankelele

Karuturi AGM 2018

As workers of the former Karuturi flower farm in Naivasha, Kenya, await the outcome of a new appeal of the long-running court case and receivership, the Karuturi Group held an AGM in India and passed new resolutions to turn round the company.

The Bombay Stock Exchange-listed Karuturi, the world’s largest producer of cut roses, had published an annual report ahead of the AGM. According to the notice and results of the AGM, the Group proposed to increase the authorized share capital of the company to meet their long-term capital requirements.

Karuturi also plans to allocate convertible warrants to new shareholders who are; IBelive Fitness Solutions who may end with 10% if they exercise all options, Eye-3 Info Media who may end with 8% and Srinivasa Retail who will end with 14.3%. Prior to the AGM, the three had no shares in the company while the promoters of Karuturi had 25% and other public shareholders had 75%, including Deutsche Bank with 5%.

Shareholders also voted to appoint Messrs K G Rao and Co as auditors of the company and the notes showed that the previous year’s figures had not been audited by the current year auditors who had then provided a qualified opinion due to non-filing of some tax returns by the holding company. Another resolution was to ratify the appointment of the daughter of the Chairman and MD Sai Rama Karuturi, who had joined the board in September 2017. The resolutions were all passed.

The company has primary borrowings with Axis Bank in India (third largest private bank in the country), ICICI Bank of India, Axis Dubai, and smaller borrowings at the Commercial Bank of Ethiopia, Zemen Bank and Lion Bank in Ethiopia.

The accounts provided an (incorrect) link to the long-running Kenya bank case and receivership in Kenya. There are mentions in the notes that Karuturi Kenya was wound up by a court order of March 2016 and the company did not have any outstanding tax demands in Kenya or Ethiopia 

In a statement, the Board Chairman wrote that the Kenya farm should soon be back in the company’s possession following workers’ protests to various government authorities and media attention fueled by Kenyans on Twitter. On Ethiopia, he welcomed the new leadership of Prime Minister Dr. Abiy Ahmed and mentioned that the company had withdrawn all cases against the government of Ethiopia, paid compensation to the workers, and entered new lease agreements with a view to resuming operations in mid-2019.

Rewiring Education

This week, the M-Pesa Foundation Academy and Nairobi International School hosted author John Couch, who was first Vice President of Apple Inc., for a talk session on “rewiring education.” The chief guest was Kenya’s Cabinet Secretary for ICT, Joe Mucheru. 

Rewiring Education speakers.

Excerpts from the rewiring education Q&A: 

  • Kids come into employment fully trained in things that are no longer relevant. They then have to unlearn that, and we are working with universities to modernize the curriculum.
  • Schools have to hire teachers who are registered with the Teachers Service Commission. But those who are there only have B.Ed (Bachelor of Education degrees), and lack skills to stand in front of students who are far ahead of them in technical knowledge.
  • The Kenya government has developed a brilliant curriculum, that will start next year, but teachers have not been trained to deliver this. International schools take three years to retrain a teacher.
  • The median age in Kenya is 19 years, and half the civil service is made up of teachers.
  • The most important skill to have in life is (to embrace) continuous learning.
  • Schools can currently evaluate student memorization, but not their creativity and innovation abilities.
  • “When I was studying at Berkeley, California in the 1970’s, people thought the social revolution was taking place in the streets, but I knew it was taking place inside computers.”
  • Safaricom set out to provide connectivity to all schools in Kenya and the government was to provide the devices.
  • “The way we are teaching kids is a disservice and I am in the process of suing the UK government for wasting thirteen years of my life!”
  • The US also treats teachers as a union problem, not a professional occupation. Teachers are underpaid and under-trained.

CMA Kenya launches University Financial Literacy Competition

The Capital Markets Authority of Kenya formally launched the 2018 Universities Challenge at KICC in Nairobi on September 25, which aims to equip young people with investment skills and nurture a culture of financial literacy and investing and saving for the future through participation in capital markets.

The 2018 edition of the Universities Challenge, which runs from September 25 to December 31, will feature 6,015 participating students from 37 local universities. They will go through five stages of elimination through testing their financial literacy and knowledge, starting with an online exam, followed by a stage dubbed a “scavenger hunt”, then they will make presentations at universities followed by presentations to CMA staff. There will then be a grand finale event in Nairobi where twelve top students will get to pitch to investment stakeholders, CMA staff and representatives of all universities in the challenge.

Speaking at the launch, CMA CEO Paul Muthaura, said that the average age of entrants was 23 years and that this was as a result of them targeting ongoing students and make them young investors because of the long-term nature of capital markets investments. Also that the use of technology was part of the CMA’s engagement process of expanding financial literacy as well as to transform the visibility of the authority through social media. He added that the CMA was in the middle of implementing a ten-year master plan and had won several awards for being among the most innovative market regulators in Africa.

The winner of the 2018 inter-university competition will get a grand prize of a Kshs 150,000 (~$1,500) portfolio of listed securities of their choice and the university where the student comes from will get investment textbooks worth Kshs 75,000 for its library. Three other winners will get fully paid 3-day educational trips to observe a securities exchange and capital markets regulator in Africa.

KPMG on the 2018 Finance Bill Amendments

The President of Kenya signed the Finance Bill 2018 after a stormy debate in Parliament last week that saw chaotic arguments about vote procedure methods used and actual vote counting mainly with regards to VAT on petrol products.

Some of the earlier clauses in the Finance Bill had been highlighted and KPMG, which has done a series of articles,  has provided a further update on aspects of the laws in Kenya and which they termed “..the changes present an unprecedented disruption of the tax regime that will impact the economy and citizenry for years to come.

Their perspective on the signed Finance Bill implications:

  • Excise duty on services: The President accepted Parliament’s decision to drop a Robin Hood tax of 0.05% on money transfers above Kshs 500,000 (~$5,000). But the shortfall was replaced by an increase in taxes on all telephone and internet data services, fees on mobile money transfers, and all other fees charged by financial institutions which all now go up by 50% – and which KPMG writes may have a negative impact on financial inclusion.
  • A national housing development levy was approved. With the country’s wage bill of Kshs 1.6 trillion, KPMG estimates that government can potentially collect Kshs 48 billion a year (~$480 million) from the levy, (Kshs 24 billion of which will be from employers) – a massive amount when compared to the Kshs 12.8 billion that NSSF – the National Social Security Fund collects in a year. Regulations for the National Housing Development Levy Fund (NHDF) have not been set, other than that the payments are due by the 9th of the following month. For employees who qualify for affordable housing, they can use that to offset housing costs but for those who don’t qualify, they will get a portion of their contributions back after 15 years.
  • Petroleum VAT: KPMG says that a significant portion of the government’s tax targets for 2018/19 was dependent on value-added tax (VAT) on petroleum products and that is why they have been insistent on having this implemented. Sectors that supply exempt services such as passenger transport (PSV’) and agriculture producers are expected to raise their charges to customers as they are unable to claim back the 8% VAT tax.
  • Kerosene, which is used by low-cost households, takes a double hit with the introduction of VAT as well as an anti-adulteration tax of Kshs 18 per litre. Already kerosene now costs more than diesel in some towns around the country.

  • Excise duty on sugar confectionery, while opposed by sugar industry groups, was reinstated in a move similar to other countries that are trying to address lifestyle diseases by introducing taxes on sugar products.
  • The betting industry, whose survival which was at stake, gets a reprieve as the gaming and lotteries taxes, introduced on January 1, were reduced from 35% to 15%. Many of the prominent betting companies had scaled back their advertising and sponsorship and had turned to engage in serious lobbying efforts ever since. Also, an effective 20% tax on winnings has now been introduced. The earlier tax law allowed bettors to claim some deductions if they kept records, but that has been removed altogether.

Kenya Finance Bill 2018

In a year in which there were crucial changes proposed to Kenya’s tax system, the National Assembly passed the Finance Bill 2018, but the President refused to assent to it and sent it back to Parliament with his proposed amendments to fuel, banking, housing, gambling and other taxes.

Sectors affected by the memorandum.

  • Banking: For every transaction your bank charges you, currently there is a 10% levy which will now go up to 20%. Also, the fee on money transfer and mobile banking services will be 20% on excisable value – up from a proposed 12.5%.
  • Telecommunications: a tax on telephone and Internet services will be 20%, up from an earlier 15% tax on the excisable value
  •  Food: He proposed reinstating a sugar confectionery tax that parliament had dropped.
  • Fuel; Kerosene will cost the same as diesel after the introduction of an anti-adulteration tax. VAT which Parliament had pushed back by another two years, and which the President wrote would cause a Kshs 35 billion shortfall in this year’s budget. He, therefore, proposed an immediate reinstatement of VAT at 8%. (VAT in the country is levied at 16% for all other goods and services that qualify).
  • Housing: Employers shall pay a new housing development levy on behalf of employees – with the employer’s contribution at 1.5% of salary and the employees at 1.5% of salary – up to a maximum of Kshs 5,000 – to be remitted on the 9th of the following month to the proposed National Housing Development Fund.

Employees who don’t qualify for the low-cost housing proposed will still have their money go to the Housing Development Fund and will get it back when they retire,

  • Gambling: tax reduced from 35% to 15%.

The President also asked Parliament to reduce the national government budget by Kshs 55 billion. Parliament was on a month-long recess but has resumed this week for special sitting sessions relating to the Finance Bill 2018. They received the President’s memorandum on Tuesday 18th September, with the budget committee meeting on Wednesday to review and approve these changes for Parliament to vote on Thursday 20th September.