Category Archives: Kenya taxation

Sports Betting – Part IV: Gambling Companies Protest Kenya tax

Today brought some shocking news that, following the passage into law of the 2017 Kenya Finance Bill, in which the President had amended an increase in the tax on gambling to 35% tax, in place of an earlier 50% one proposed at Parliament, Sportpesa, the apparent industry leader of sports betting and gambling would be ending all its local sponsorships.

Sportpesa has a sizeable local sports sponsorship portfolio, supporting several local sports ventures; In rugby (the Kenya Rugby Union, Kenya Harlequins), and in soccer (Kenya’s premier league, a Super 8 tournament, Football Kenya company, as well as individual teams of Gor Mahia, AFC Leopards, Football Kenya, Nakuru All Stars).

Sportpesa started operating in Tanzania just two months ago, but recently hosted a soccer tournament in Tanzania featuring top Kenyan and Tanzania teams, which was won by Gor Mahia, earning them a pre-season match with Everton, the English premier league team, on July 13 in Dar-es-Salaam.

The strong-arm tactics of Sportpesa look similar to ones tried by Kenyan banks before the President went ahead and signed an interest capping bill into law that the banks had strongly opposed. The effects they warned about now seem to becoming true with reduced lending to businesses, and liquidity in the economy.

The sports betting and gambling companies push back also comes at a time when Kenyan sports face myriad issues like doping allegations, an ineffectual sports minister and fatigue and funding cutbacks by other large sports sponsors including Multichoice (DStv), EABL, KCB and Safaricom over management issues with different sports associations and teams. While gambling companies like Sportpesa had stepped up, the sports’ funding sources now appear in limbo.

Drones, Helicopters and Aviation Regulations in Kenya

This morning, the Director General of the Kenya Civil Aviation Authority (KCAA) gave a press chat on the aviation sector.

  • Drones: About 5,000 drones (mostly toy ones)  have been confiscated at Nairobi’s airport (JKIA). They have drafted new policy procedures and rules for drones that awaiting approval by the attorney general, but for now, their usage is still illegal.
  • US Flights: The country has now got category one status. There will be one more inspection later this year after which Kenya Airways can apply for rights and probably start flying to the US in April 2018. He expects 75% of the tickets to be taken up by US businesses people travel to Africa with Kenyan diaspora making up 15% and the rest as leisure travel.
  • Expensive Tickets: About 43% of the cost of an air ticket in Kenya is taxes. There is a strategic plan to make six East African countries a domestic market which should lower airline taxes per ticket from the current Kshs 5,000 to 500 and this will enable more and cheaper flights in the region.
  • 80% of KCAA’s income comes from airlines over flying Kenya which is strategically placed in Africa.
  • Helicopters: There are 88 licensed helicopters in Kenya, and 60 are operating. Also, the KCAA expects about 40 more to arrive to be used in campaigns for the August 2017 election. Their biggest problem they have are with “James Bond incidents”  (people hanging on skids) and the Director urged media to report such on incident for them to take action on  act on operators
  • Opportunities: There are 100 licensed helicopter pilots and this is not enough; there are many more jobs as helicopter pilots, aviation engineers, and safety operators. Entering these sectors is not cheap as it costs Kshs 2 million to be a private helicopter pilot and about Kshs 6 million to be a commercial helicopter pilot, with part of this high cost being due to the cost of avgas as pilots have to spend many hours in training. (While petrol is Kshs 95 per liter, Avgas is 150).
  • Training: There is a big concern about colleges claiming to offer aviation courses, but which are not in fact certified by the KCAA. Anyone seeking to operate in the sector is re-examined

Funding the SGR

Excerpts from the Public Investments Committee special report on the procurement and financing of the construction of Standard Gauge Railway (SGR) from Mombasa to Nairobi (phase I) (April 2014)

  • The Ministry of Finance on 4th January 2010 wrote to the Government of China requesting for a concessional loan for the construction of a new Standard Gauge Railway at a cost of USD 2.5 Billion. The funding of the project is not a grant to Kenya but rather a loan that the people of Kenya are going to pay.
  • In the Budget Statement for Fiscal Year 2013/14 delivered on 13th June, 2013 the Cabinet Secretary for the National Treasury proposed an amendment to the Customs and Excise Act, Cap 472, Laws of Kenya, so as to introduce a Railway Development Levy of 1.5 % of the customs value of all imported goods. The loan will cost USD 3.23 Billion from EXIM Bank of China comprised of a concessional loan of USD 1.6 billion and a commercial loan of USD 1.63 billion. The concessional loan is for 20 years and has a grace period of 7 years and an interest rate of 2% per annum while the commercial loan is for 10 years and grace period of 5 years and insurance cover of 6.93% of the commercial loan and interest of six months LIBOR + 360 basis point. The loan has a grant element of 35%. The insurance component is always available for any commercial loan. For China, the insurance cover has to be done by a Chinese firm, SinoSure. The insurance cover is to take care of nonpayment.
  • The major financial implications of the project will be Kshs. 349.44 billion relating to: – EPC contract for USD 3.8 billion covering USD 2.657 billion for civil works, and USD 1.146 billion for facilities, locomotives and rolling stock; Kshs. 8.04 billion for compulsory acquisition of 2,253 hectares of land for the railway corridor; Kshs. 10.6 billion for Embakasi Inland Container Depot (ICD) expansion programme, facility development and container handling equipment; Kshs. 1 billion for land acquisition for the Embakasi inland depot; and Kshs. 3 billion for project supervision.
  • The Government of Kenya has met all the requirements of the EXIM Bank of China which include; an Assurance that the Government will guarantee minimum freight demand for the SGR through execution of take or pay agreement between KRC and the Kenya Ports Authority and confirmation that Railway Development Fund will be used to repay the loan. EXIM Bank of China is currently going through its internal credit approval process following which it will submit to GoK, through the National Treasury the Financing Agreements. The financing agreement has not yet been signed (at the time of the report).
  • There is no financing agreement yet signed between the Government of Kenya and EXIM Bank in China. There is no sovereign guarantee by the Government of Kenya on the commercial and concessional loan from the Government of China (at the time of the report).
  • The National Treasury has undertaken a debt sustainability analysis and to ensure that the SGR loan does not compromise the debt policy parameters spelt out in the debt sustainability strategy paper and is sustainable.
  • In the unlikely event that the revenues from railway operations are inadequate, the proceeds from the Railway Development Fund will be used to repay the loan.

$1 = ~Kshs 103

Food Imports to Kenya

While there have been several discussions about maize and other food imports to Kenya  such as where the maize came from, who is selling it, and at what price, more is on the way to deal a national disaster situation, partly attributed to delayed rains and prolonged drought.

Writing in a recent opinion piece in the Standard, James Nyoro, government advisor (who was previously the Rockefeller Foundation’s Managing Director, Africa, and probably the next Deputy Governor of Kiambu), wrote that food imports are normal for Kenya… in normal years, Kenya imports 30% of maize, 75% of wheat, 45% of sugar and 80% of its rice needs.

This comes at a time when all of Africa is talking about embracing agri-business and getting more people and more value out of agriculture. Kenya is probably in a very good place, as it  produces lots of foods, does a lot of local consumption and international exports, and has good networks and communications tools for farmers and government, but still, there is little finance to agriculture, and a lot of prime agricultural lands is being converted to real estate or commercial uses.

The Cabinet Secretary for Treasury recently gazetted and listed companies that were allowed to import duty free, non-GMO, yellow maize to be used for animal feed including Unga Farmcare 36,000 metric tonnes, Pembe Feeds 20,000, Isinya Feeds 50,000, Sigma Feeds 50,000, Milele Feeds 20,000, Mombasa Maize Millers 36,000, Chania Feeds 4,000, Farmers Choice 30,000, Naku Modern Feeds 2,000, Pioneer Feeds 3,000, Empire Feeds 10,000, Tosha Feeds 90,000, Turbo Feeds 1,000, Treasure Feeds 3,000, Economy Farm Feeds 1,000, Prosper Properties 2,000, Legorn Feeds 3,000 , Huduma Feeds 6,000, Eden Millers 5,000, Ohami Feeds 1,000, Tarime Feeds 1,000, and Thika Farmers Group 36,000 metric tonnes

He also set published temporary rules for white maize, sugar, milk, and dates: The ones for white maize included Any person may import white maize if it meets the following conditions—

• The white maize shall not be genetically modified in accordance with the standards applicable in the European Union; i.e it shall not be genetically modified (GMO) maize.
• It shall have a moisture content not exceeding 14.5%;
• It’s aflatoxin levels shall not exceed 10 parts per million;
• It shall be accompanied by a certificate of conformity issued by a company appointed by the Kenya Bureau of Standards; and
• It shall have been imported on or before the 31st July, 2017.
• Any person may import dates during the month of Ramadhan.

In a separate notice, he authorized there be no duty on sugar imported between May 11 and 31 July 2017 and as well as on 9,000 tonnes of milk powder imported by milk processors authorized by the Kenya Dairy Board.

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%.