Category Archives: medical insurance

Kenya Income Tax Cuts, Increases, and Other changes 2018

The Kenya government, through the National Treasury, is proposing some long overdue changes to the country’s income tax laws, which are contained in a draft bill that will be submitted to Parliament.

The bill has new clauses that affect transfer pricing, new extractive (oil & gas) industries, phase out of turnover tax, and an apparent tax cuts. It comes after other recent changes to the tax code. Kenya also has an ongoing waiver and amnesty program for income tax and assets held outside Kenya to be declared and repatriated to the Kenya Revenue Authority (KRA)  by June 30.

Leading accounting and audit firms such as KPMG, PWC, and Deloitte have looked deep into the clauses, and these are some of their findings: 

KPMG:

  • Companies are to produce and maintain transfer pricing documentation and policies in place for the year of income.
  • The withholding tax threshold of Kshs 24,000 had been deleted.
  • Payments to non-resident petroleum contractors will be 20% (up rom the current 12.5%)
  • Developers who build over 400 houses to pay taxes of 15% on gains.
  • Micro-finance institutions (MFI’s) interest will be exempt from withholding tax.
  • Sports clubs & associations will get taxed on entrance fees and subscriptions.
  • Farms, warehouses or doing consultancy work for more than 91 days in a year are now considered permanent establishments. KPMG comment – This will require non-resident persons doing business in Kenya to re-think their operational models.
  • A listed company will pay 25% taxes for five years if 40% of its shares are floated.  KPMG  comment – this will reduce the impact of taxation as an incentive to list.

Deloitte:

  • Income tax rate of 35% on more than Kshs 750,000 (~$7,500) per month
  • Non-residents’ who receive their pensions in Kenya will pay a tax of 10% on transfers (up from 5%) 
  • A higher corporate tax of 35% for large companies with taxable income over Kshs 500 million (~$5 million).
  • Real-estate capital gains tax of 20% (up from the current 5%). Deloitte comment – Though the increment is quite steep, it enhances equity considering that CGT is regarded as a tax on wealth.
  • Equality: Each person in a marriage is now required to file their own tax returns: no more cases of wives having their incomes filed under husband’s income tax returns.  
  • Mining & Oil: Losses can be carried forward for a maximum of 14 years (There is no current cap)
  • EPZ holiday removed: Now EPZ’s will pay 10% tax for the first 10 years, and 15% for the next ten years (other companies pay 30% corporate tax).
  • SACCO’s: Cooperative societies to pay a withholding tax on dividends and bonuses of 10% (up from the current 5%) 
  • Subsidiaries in Kenya to pay 10% tax on dividends remitted to the parent companies.
  • E-commerce: The Treasury Cabinet Secretary will be allowed to introduce taxes on digital platforms.
  • Capital allowances reduced: The 150% allowance for investments outside cities has been removed, those for filming equipment reduced from 100% to 50%, and educational institutions from 50% to 10%.
  • Small businesses, that are licensed by counties, will pay a presumptive tax of 15% of the business permit fee. Deloitte comment – (this) replace the turnover tax, currently at the rate of 3% of a person’s turnover (KRA has faced challenges collecting) ..  will require collaboration with the county governments. 

PWC

  • All medical insurance paid by employers for employees is now tax-exempt (even for expatriate staff) and age limits for children covered goes up from 21 to 24 years.
  • withholding tax of 5% will be levied on payments to foreign insurance companies. PWC comment – this is aimed at promoting local insurance companies.
  • Income tax exemptions that have been dropped include income of the Export-Import Bank of the USA (relates to Kenya Airways?). Also on the income of stockbrokers from trading in listed shares. PWC comment – this may have a negative impact on the growth of the capital markets in Kenya;
  • 20% withholding tax on payment to non-Kenyan companies for horticultural exports. 
  • 20% withholding tax on payment of air-tickets to non-resident agents. PWC comment – may lead to increase in airline ticket prices in Kenya which may affect competitiveness of local airlines.

They also looked at other recent tax adjustments which PWC notes will mainly alleviate the government from paying VAT refunds.

  • Milk, maize, bread, bottled water, will all cost more after moving from “0%” VAT to “exempt” VAT as importers will pass on non-recoverable VAT to consumers.
  • Same for LPG gas, some medicines and agricultural pest control inputs.
  • Making housing affordable. PWC comment – the Government is also proposing a stamp duty exemption for the purchase of a house by a first time home owner under an affordable housing scheme
  • Betting/Gambling: For winnings, a 20% tax will be deducted at source i.e the betting company) on any prizes (this is up from the current 5%)

Other Clauses in the Income Tax bill

  • Parent companies are to file country-by-country reports with KRA within 12 months of year-end.
  • No capital gains tax is due on land if it is compulsorily acquired by the government.
  • No capital gains on listed securities.  
  • While there is a new 35% tax for the rich, the income tax bill appears to lower taxes for the low-income.  e.g. someone earning Kshs 40,000 (~$400) per month, who pays 5,932 in tax per month now after personal relief, will have a lower tax burden.  Income tax bands are expanded in the 10% range (now up to 13,000 from the previous 10,000) and there is also a higher relief of Kshs 1,408 versus the current 1,162) and the resulting net tax for the person will now be Kshs 5,009 for the month – a 15% income tax cut?.  
  • Tax rate of 15% for five years for local vehicle assemblers. This can be extended by another 5 years if the company achieves 50% local content value in the vehicles.  
  • Taxes waived on the income of disabled persons, amateur sports associations, and NGO’s (relief, poverty, religion, distress) whose regional headquarters are located in Kenya.  

Finally, other stakeholders are invited to review the proposed changes to the 103-page income tax bill and submit comments via email to ITReview2017_at_treasury.go.ke by May 24.

Fintech Companies to Watch and Influencers in 2018

Companies: Last November, KPMG and H2 Ventures released a report listing their fourth annual fintech innovators (‘Fintech100’)  comprising 50 established companies and 50 emerging companies to watch in Fintech.  The companies are innovation across sector like banking, payments, remittances, spending, artificial intelligence, data management, and insurance.
They noted that China continues to dominate the fintech landscape, with 5 of the top 10 companies on the list. Digital or new banks in the list include Solaris Bank, Nu Bank, and Atom Bank.
Some notable companies on the list;
  • ZhongAn (online property insurance)
  • Stripe (frictionless financial transactions)
  • OurCrowd provides an equity crowdfunding platform for accredited investors to access and invest in Israeli companies)
  • Circle (free international remittance via email)
  • Xapo allows users to utilize their bitcoins while Xapo safely stores them)
  • Future Finance (gives students loans of 2,000 to 40,000 pound,  within 24 hours that can be paid over 5 years)
  • Coinbase (enables digital currency transactions)
  • AfterPay Touch (from Australia gives online shopping users an option to spread purchases across four equal installments)
  • Robinhood (free stock trading of US stock and ETF’s)
  • Alan (Europe’s  first digital health insurance company)
  • Bud (enables users to combine bank accounts and get personalised insights from a single source)
  • Capital Float (from India provides collateral-free working capital loans to small businesses within 3 days)
  • Cuvva (provides short-term,  flexible car insurance to consumer groups, including taxi- drivers that range from 1 hour to 28 days)
  • Flutterwave (from Nigeria, is in over 36 African countries, enables individuals and businesses to accept online and offline payments)
  • GrassRoots Bima (from Kenya matches customers with micro-insurance products – known as WazInsure)
  • KredX (from India matches SMEs seeking working capital with investors looking for above-average yield on short-term investments)
  • Leveris (banking platform for digital retail banks)
  • Riby (Nigeria cooperatives enabler)
  • Sensibill (allows bank customers to get their receipts in a few different ways)
  • SoCash (addresses cash logistics issues for banks)
  • Token (an API banking platform)
  • Valiant Finance (an online broking platform for SME’s) 
Influencers: Also, Jay Palter has a list of 195 fintech influencers for the year 2018; have only heard of a few – Brett King (who visited and spoke in Nairobi in January 2017), Yann Ranchere, Elon Musk and Vinod Khosla, but will check out the rest.
EDIT
 
Also,  the new CB Insights report on fintech observations and trends to watch in 2018 cites:
  • No billion-dollar fintech M&A in 2017
  • Chinese firms drove fintech IPOs in 2017
  • Europe saw record for fintech investing in 2017, as Asia and the US saw fintech funding recede
  • Amazon gets more aggressive in fintech — outside of the US, but Amazon’s US efforts are a far cry from Tencent and Ant Financial’s global fintech forays in China
  • The largest deals in 2017 went to companies providing insurance…
  • Startups are allowing Chinese investors to access overseas securities and In 2017, Ant Financial’s Yu’e Bao became the largest money market fund in the world
  • Banks forgo partnering in favor of fighting fintech with fintech 

Reading the Nairobi Hospital tea leaves

What does a read of The Nairobi Hospital, which is probably the top hospital in East Africa, tell us about the state of medical investments here? The Nairobi Hospital (NH) was founded in 1954, and it, alongside Aga Khan Hospital,  is where top leaders, politicians from Kenya and the East Africa region are treated. It is also where middle-class Kenyans, tourists, and anyone with private medical insurance is treated or operated on.

Nairobi Hospital room

But treatment at Nairobi Hospital is not cheap; , a few days stay without surgery will cost about Kshs 300,000 (about $3,000) and a night in the intensive care unit (ICU ) is about Kshs 500,000!
Kenyans who have medical conditions have discovered that traveling to India for surgery, medicine, and other complex treatment procedures is a better option, even after one factors in the cost of travel for patient and relatives who oversee the patient.
Anyway, how does the Nairobi Hospital (officially registered as the Kenya Hospital Association) in 2016 compare to a few years earlier with the hospital’s 2009 report?
  • Turnover was Kshs 8.79 billion (~$88 million), up from 8.0 billion in 2015.
  • They had a surplus of Kshs 1.3 billion  ($13 million) up from Kshs 1.06 billion, but below the Kshs 1.4 billion in 2014.
  • Some income items: Pharmacy income was 2.5 billion (a 13% growth on the previous year) and the pharmacy had 60% growth in chemotherapy sales thanks to NHIF package (partnership with NHIF has opened doors to our brothers and sisters who would otherwise have not received world class health services. This has seen a rise in number of patients accessing their preferred health care in our Cancer Center, Renal Unit and Catheterization Laboratory. Laboratory income was Kshs 1.4 billion (they have also implemented o shore reporting from India for CT scan, MRI and mammography). Physiotherapy revenue was Kshs 246 million, and accident and emergency revenue was Kshs 374 million (53% of visits were done in 75 minutes and they plan to reduce the waiting time).
  • Some expense items: The Nairobi Hospital paid salaries of Kshs 2.5 billion (compared to Kshs 2.1 billion in 2015) and they added 276 staff in the year (including 128 nurses), a CEO, Company Secretary, and a Security Manager. Key management compensation dropped from Kshs 130 million to Kshs 93 million (in 2015) – and does that difference correspond to the salary of the outgoing CEO who left to become Kenya’s Cabinet Secretary for Health? They also bought medicine worth Kshs 1.7 billion, paid cleaning costs of Kshs 71M, Oxygen with 41M and paid Kshs 21 million to credit card companies
  • The Nairobi Hospital invested Kshs 2.1 billion in projects such as pharmacy, water storage, parking, nurses accommodation, roads, fencing, and kitchen improvements. They also hired a marketing agency to improve the image and awareness about services at the hospital and participated in news interviews, features, and social media.  
  • Some operational numbers for the hospital: They had 154,760 visits to accident & emergency centre, carried out 685,802 lab tests, handed out 354,296 prescriptions, and did 98,198 radiology procedures. They had 18,386 admissions, had 2,730 births (a 17% decline from the year before), and did 7,990 major operations and 1,975 minor ones. They also an occupancy level of 79%, which was down from 81% on their 299  beds, and they retained their customer satisfaction measure of 89%.  The relocation of their ICU / HDU units temporarily reduced capacity from 356 to 299 beds. 
  • On the finance side, they had cash and equivalents of Kshs 2.7 billion (down from 3.5 billion) but still a very healthy liquidity position. They also had Kshs 399 million at Imperial Bank and had Kshs 280 million of doubtful debts (up from 240 million), and Kshs 24 million in foreign exchange losses from currency fluctuations.  
  • The new Nairobi Hospital CEO wrote that his strategy would revolve around talent, technology, turnaround and territory (new location to enhance service). On the health industry, which contributes 6% to GDP, he wrote that income at the Kenya government’s National Hospital Insurance Fund (NHIF) had more than doubled to Kshs 28.5 billion in 2016 thanks to new rates levied on Kenyan workers and that there were 172,706 health personnel in Kenya in 2016.
 
Website of the Nairobi Hospital.  

Makueni County Healthcare

The Makueni County government is this week conducting new registration for a universal healthcare program in the 60 sub-wards in the county.  The Makueni University Healthcare program will provide essential health services to county residents at eight sub-county hospitals, and the county referral hospital.

It is being lauded and Makueni Governor Kivutha Kibwana who previously battled with the county assembly (parliament) that he was elected alongside in 2013, now appears to be enjoying a resurgence after his re-election on August 8 which he easily won, while 29 of the 30 county assembly legislators (MCA’s) were voted out.

The MCA’s had tried to impeach the Governor and he subsequently moved to dissolve the entire county government. A commission on inquiry looked into the disputes at Makueni and made some recommendations to the President, but as he never forwarded the report to the Senate for debate and approval, the situation was never fully resolved, until the 2017 election.

In promoting the Makueni health care program, the county government states the high level of poverty (60%) in the region as a reason why they set out to provide free health care to senior citizens (above 65 years of age) in the county through a pilot program in 2016. They deemed it a success and decided to expand it to universal health care and they have already enrolled another 33,344 households, excluding the senior citizens. The ongoing registration aims to net 180,000 new households and the benefits of the program will be improved health care with no out-of-pocket expenses for households which have previously resorted to selling livestock or land to meet family medical expenses. During the test phases, Kshs 138 million was expensed, with the bulk of that going to pharmacy expenses (33%), then inpatient (24%) and laboratory (15%) expenses.

The Makueni program will pay for emergency healthcare, laboratory, radiology, theater, cancer screening, drugs, and ambulance evacuation, among other expenses. The cost is Kshs 500 per year for a household and that will cover a nuclear family – beneficiary, spouse(s) and dependents of school going age. It is separate from the government’s national hospital insurance fund (NHIF), and Makueni will not cover services outside the county, such as scans, MRI’s, post-mortems, ICU, dialysis, and other specialized services not available within the county.

The ambitious and novel Makueni program is similar to one in Muranga county that sought to mobilize savings for county investments, but which was scuttled by regulators and wary investors.

The latest Auditor General (OAG) reports on Makueni noted that the county government received (2015) revenue of Kshs 6.3 billion (that included Kshs 5.9 billion from the national government) and that Kshs 5.4 billion was spent, leaving a Kshs 0.9 billion surplus. The OAG noted the disruption of the government activities but gave an adverse opinion on the Makueni county assembly (legislators) accounts while those of the county government (executive) were qualified. The executive was flagged for operating bank accounts at banks other than the Central Bank, and also for issues with the procurement of assets and construction of dams. The report on the assembly noted issues with lack of supporting documentation, hiring of professionals, including lawyers in the case against the governor, and trips that Makueni MCA’s had made to Mauritius, Boston, London, Malaysia Dubai and Singapore.

Make Innovation the Centre of your Business and Job or Face Disruption

These were the words of Brett King, a futurist and bestselling Author spoke about disruptive innovation to guests at a business forum at the Capital Club, Nairobi. He had been invited by KCB Group, Kenya’s largest bank, which he is advising on a digital finance strategy.

He said that companies that are based on innovation and technology ( E.g Google, Facebook, Alibaba, Baidu, have ten times more profit (~$500,000 per employee) than traditional companies of ($30,000 per employee) or banks ($50,000 per employee)  as they are more efficient at converting production to profits

Other comments:

  • Historically technology that is cool but disruptive ,is resisted and he compared Luddites who smashed factory machinery in England in 1812, to taxi drivers smashing Uber cars in France 200 years later.
  • He expected more contextualization of financial service a based on location and behaviour: e.g. walk into an Apple Shop and you get a finance offer on your phone about a new device you have been longing to buy.
  • Bitcoin’s ability to be a currency is hampered because owners of the coins are hoarding them like gold so they appreciate in price (which is now $1,000). They are not using the bitcoins to make payments which are what currencies are meant to do.
  • There’s a bright future for peer to peer (P-2-P) insurance (more than P-2-P lending).
  • The service jobs there today will be replaced by automation/robotics. But this creates even newer service jobs (every job lost to technology create 2.6 others), and students considering careers should ask themselves how they will compete with Artifical Intelligence (AI) or work in jobs that enable the future e.g. solar adapters.
  • Entrepreneurs should create businesses that take advantage of AI. The mid-2030’s will be an exciting time as there will be more energy from renewable sources than fossil fuels and more robots than humans.
  • On Kenya’s revolutionary M-pesa, which had facilitated the fastest financial inclusion shift in history, he said it was clunky as it was designed for feature phones.