Category Archives: Kenya taxation

Mombasa and Tax Collection

There was an interesting screen shot of the amount of customs tax collected by the Kenya Revenue Authority (KRA) on 16 December 2016.

It showed a total of Kshs 1.57 billion collected that day. Of that, Kshs 1.24 billion (79%) was recorded at Mombasa, and Kshs 139 million (9%) at Nairobi. Other top collection points were 6% at Nairobi’s  JKIA airport, 2% at Mombasa Airport and at Pepe Containers each, and 1% (Kshs 15 million) at Busia town.

Other centers listed include Eldoret and Wilson airports, and border towns of Moyale (Kshs 640,000), Isabanya, Namanga and Malaba which all recorded small collections. Other centres were Lamu with Kshs 21,000 and Kshs Kisumu 10,000. Mombasa had 1,887 transactions, JKIA had 1,205 transactions, Busia had 141, as Lamu had just 3 on that day.

In 2016, KRA collected Kshs 1.2 trillion of revenue for the government, which included Kshs 386 billion of customs tax – which works out to almost Kshs 1 billion per day. So Friday, December 16, was an exceptional collection day that came just before the Christmas break.

It’s worth noting that landlocked countries in East Africa are also able to pay tax and clear goods at Mombasa before transportation to the countries. This is done to prevent dumping of untaxed cargo during transit through Kenya.

KRA’s strategic corporate plan calls for clearing more cargo at Internal Container Depots (ICD’s) and this may have implications for Customs’ deployment of staff in the coast region. KRA’s 6th corporate plan also noted that the perception of corruption is highest at Customs service area at 66%.

Kenya Tax Changes in 2017

Tax changes that become effective on January 1, 2017, as a result of the finance bill signed  by the president on 13 September 2016

  • PAYE brackets have been expanded by 10% and the relief also increased by 10%. (now Kshs 15,360)
  • VAT on service charge has been removed, provided that the service charge does not exceed 10% of the price of the service
  • A taxpayer can apply for a refund of overpaid tax within a period of 5 years from the date which the tax was paid. Any amount not refunded within 2 years will accrue interest rate of 1% per month.
  • Withholding tax on winnings from betting and gaming has now been abolished and replaced by a betting tax of 7.5% on the gaming revenue,  lottery tax at 5% on the lottery turnover, a gaming tax at 12% on gaming revenue and a prize competition tax at 15% on the cost of entry to a competition

Extracts from a report by the Grant Thornton Kenya team.

Lipa Kama Tender

hospital-bed

Lipa Kama Tender

This evening, Kenyan public sector nurses called off their strike after the government agreed to implement a collective bargaining agreement (CBA) deal. It’s been a painful week for patients around the country as nurses and doctors have been on strike at many public hospitals and medical facilities. Anyone who has spent time in a hospital realizes how much work the nurses do in terms of taking care of patients, alongside doctors – who themselves are still on strike, also awaiting the government to implement their CBA signed n 2013?.

The striking workers used the solidarity slogan “lipa kama tender” – Swahili for “pay (us) the way you pay (government) tenders” as a play on the widespread reports of the government paying out millions and billions of shillings of taxpayers and donor money in overpriced, corrupt, fraudulent tenders for supply of goods or services – some of which were for health-related equipment procurement, and which were flagged by an auditor who has since been removed from the sector.

Mining Moment: Kenya Mining Forum

Excerpts

Kenya’s Mining Cabinet Secretary, Dan Kazungu; Kenya has a $30 million budget for an aerial mineral survey, and will also start a mineral data bank & audit unit

  • Kenya has gold coal iron copper titanium niobium flouspar limestone CO2 (carbacid in Kiambu) gypsum gems.
  • In April cabinet approved a mining & mineral policy, and in May Kenya repealed the 1940 mining act and replaced it with a new progressive law.  The mining act 2016 aligns itself to 3 documents – the 2010 constitution, Kenya vision 2030 and AU Africa mining vision
  •  Kenya’s 2016 mining act aligns itself with the 2010 constitution, Vision2030 and AU mining guidelines
  • Mining was an environment ministry department till Jubilee made @madinikenya an economic transformation pillar
  • The new application laws are simple, clear, predictable and transparent for a level [laying field. The engaged the industry. There will be no more single person decisions. Committees will give feedback to mining requests in 3 months with reasons, and if applications are for more than $500  million it has to go through parliament
  • Intra-Africa trade can also including mineral traded legally – make Kenya a trading hub (not a smuggling one)

Patrick Obath: How can Kenyans get more mining information Right now it’s only in the gazette which hardly anyone reads.

Central field at Base Titanium, Kwale, Kenya.

Central field at Base Titanium, Kwale, Kenya.

Martin Ayisi: Kenya law now recognizes artisanal mining ..can have impact like Mali where they produce 23 tons of gold worth $742M in 2015

  • Kenya government can now award some mineral rights by tender, as opposed to first come first served 
  • Prospecting consent is guaranteed by law .. the challenge is when to apply for formal permission
  • Mining investors hate when governments change rules midstream
  • Kenya is creating a national mining corporation but there have not been success stories in Africa. Nevertheless they will take on lessons from Ghana and Zambia and learn from those

Dominic Rebelo: Miners are concerned that at the end of licenses, all assets go to government (immovable ones go to national government, and movable ones to the county)..some will scale back operations and sell off (strip) assets to preempt this before their licenses end

  • Mining companies and mining support companies will be licensed and have comprehensive disclosure & progress report requirements. This is to lock out briefcase ones,  or people who sit on licenses for speculation
  • Large mining companies `are to list 20% in 3 years, but stock exchanges require 5 years profit – there may be a need to create a special stock exchange for mining companies. Also the govt gets 11% for free (10% + there’s 1% stamp duty to be paid)
  • If an mining investor finds a strategic mineral, they have to stop operations indefinitely & declare the find. There needs t be certainty of what is defined as a strategic mineral, and a defined process of getting a mineral on or off that list.

Capping Kenya Bank Interest Rates – Part III

Yesterday, the President signed the Banking (Amendment) Bill, 2015. It’s just under a year to the next election, and the president has surprised many by signing the bill.  He’s taken an ace from the opposition and, in a way, fulfilled his Jubilee party manifesto which has a line about “..pursue exchange rate stabilization policy and monetary policy that will lower interest rates.”

In signing the bill he noted that banks … need to do more to reduce the cost of credit and …we will implement the new law, noting the difficulties that it would present, which include credit becoming unavailable to some consumers and the possible emergence of unregulated informal and exploitative lending mechanisms.

There’s a version of the bill  at the ICPAK site that mentions:

  • The maximum interest rate is  4% (above the CBK base rate) for any credit facility in Kenya
  • Deposit on an interest earning account will be 70% of the base rate
  • Fines & jail terms for bank executives.
  • Banks that flout other sections of the banking law, can’t pay out dividends or bonuses and can lose control to the regulator.

There is still a lot of ambiguity in terms of the reach of the law. Does it cover mortgages? What about micro-finance institutions (MFI’s), mobile banking loan products (M-shwari has 4 million customers and KCB M-pesa has almost 1 million borrowers) , credit cards (which have interest rates of 30%) and most important will the law be retroactive? i.e. apply to already existing loans

In the meantime, expect banks to overhaul all their products including:

  • Limiting new loans.
  • Reducing interest-earning accounts i.e savings account products
  • Overhauling all products and marketing materials in terms of disclosures.
  • Bank charges will go up, and maintaining bank accounts will get much more expensive.

Finally, a common lament in this current parliament has been a lack of implementation of its bills. And with interest rates, the president may have signed it, but the date on which they will become effective as a law is not clear.

The era of bank super profits is in the  past, and this new bill makes the banking sector, still unsettled by bank closures and increased regulatory scrutiny, much less attractive to potential investors.