Category Archives: SME solutions

Kenya Tax Changes in 2020

A look at some of the Tax changes that become effective on January 1, 2020, as a result of the Finance Bill 2019 that was signed by the President on 7 November 2019.

The highlight was the repeal of Section 33B of the Banking Act which had put an interest rate cap on commercial bank loans, but there are also other taxation clauses of note.

  • Import Declaration Fee levy has been increased from 2% to 3.5%. Also, the Railway Development Levy, which is an important component of paying for the SGR, has been increased from 1.5% to 2%.
  • Companies that list under the Nairobi Securities Exchange’s GEMS program for the next three years can be forgiven tax penalties and interest, provided they pay the principal amount. This move to encourage listing at the NSE became effective in November 2019. But if they delist within five years, that window lapses and all taxes due before listing will again become payable.
  • Taxes also go up for cigarettes, electronic cigarettes, fruit wines and spirits.
  • Motor vehicle excise taxes go up from 20 to 25% for cars over 1500 cc, and that for station wagons and race cars go up from 30 to 35%, but for electric-powered motor vehicles, that goes down from 20 to 10%.
  • Sports betting companies take another hit with a 20% tax lopped on to each bet amount, regardless of the outcome of the wager.
  • New economy taxes: The new year ushers in taxes on the digital economy market place – this encompasses “platforms that enable interaction between buyers and sellers of goods & services through electronic means” who are now liable for income tax and value-added tax (VAT). Along with that, a taxpayer PIN is mandatory when one is registering for a paybill and till numbers (to process mobile payments) through a telephone company
  • Real Estate Investment Trusts (REIT’s), which were exempt from corporate tax are now also exempt from income tax.
  • There is an income tax exemption for people who register under the Government’s Ajira Digital (online work) program from January 2020 to December 2022.
  • Green bonds: Interest income on all listed infrastructure bonds, or green bonds,that are a minimum three years to maturity will be exempt from income tax as will income on the National Housing Development Fund.
  • Turnover tax of 3% has been reintroduced and will be payable monthly by any business whose turnover does not exceed Kshs 5 million (~$50,000) in any year. EDIT – does not apply to companies already registered for VAT or those earning employment income rental income, engaged in management & professional services and limited liability companies. There is also a Presumptive Tax, a new tax that is 15% of the annual fee paid for a license e.g. to operate in Nairobi County and that can be offset when paying the turnover tax.
  • Environmental stuff: Plastic recycling companies will get a preferential corporate tax rate of 15% for five years and machinery and equipment used for plastic recycling plants are now VAT exempt. But, going the other way, equipment for the development of solar and wind energy, including batteries, which were previously exempt from VAT, now require the Cabinet Secretary for Energy to approve any such exemptions.
  • A taxpayer PIN is now mandatory when one is renewing membership in a professional body or with any licensing agency.
  • Mitumba and shipment consolidators are now recognized – if they have warehouses in the country of origin and Kenya, and have no history of dealing with substandard or counterfeit goods.

Meanwhile, the President said at the Jamhuri Day celebrations (on December 12) that a mortgage scheme he had previously proposed, and which entailed a deduction of 1.5% of salaries, would not be mandatory. Parliament resumes in February 2020 and we shall see if they amend that.

Extracts from reports done by KPMG East Africa, RSM Eastern Africa LLP and KN Law LLP .

Banking Week: Interest caps go and Stawi starts

Interest-Caps: This week saw the end of the era of capping of interest rates, that was seen as a populist three-year experiment to reign in large banking-sector profits.

The Government had tried to repeal this, without success, several times over the last few years, and bankers and the IMF have also been vocal about the unintended, and detrimental effects of the caps, on the economy.

Parliament stuck to its guns to the last minute, making farcical attempts to keep the caps in place. But as only 161 MP’s were present to vote, they could not proceed to over-ride the President, as they needed 2/3 of Parliament to be present. While some lawmakers have in the past argued that this high constitutional threshold (of requiring a vote of 233 MP’s) gives the President power to make laws, this has been upheld by the Courts.

The caps did not stop the “super profits” at large banks, but they did weaken smaller banks by limiting their interest-income growth. In the interest capped era, large banks found shifted their lending lend to a national government with an insatiable borrowing appetite, as opposed to small businesses, and when these credit lines shut off, small banks were hit with a rise of non-performing loans.

Stawi: This week also saw the formal launch of Stawi after a pilot phase in which that 80,000 had signed up for this banking industry response to the mushrooming of unregulated loan apps.

Stawi aims to promote savings and lending for small businesses. It is a bank account, opened and operated on phone, and owners can move money through M-pesa (for a flat fee of Kshs 42) and Pesalink. Stawi is hosted by the Commercial Bank of Africa, and, like with its M-shwari product, banking services are only rendered on the app, not at branches.

Users of Stawi have to be registered and in business for six months. New users are encouraged to make Stawi their primary account and to channel transactions through it to get a borrowing limit.

On downloading the app, one is assigned a loan limit based on credit their credit history. Stawi offers unsecured loans of between (~$292) KSh30,000 to (~$2,432) KSh250,000 that can be repaid between one to twelve months at rates of 9% per year.


How can the US engage in Africa, and go around China?

.. Extracts from “Deconstructing the Dragon: China’s Commercial Expansion in Africa,” a recent report by Aubrey Hruby that postulates what the United States can do to reposition its influence in Africa whose governments have received extensive assistance from China, mainly in terms of infrastructure projects.

The looks at the nature of infrastructure deals that have come to be dominated by China state-owned enterprises through a combination of feasibility studies, negotiations financing through Chinese loans, and eventually mobilization to start construction. Quick-decision making is a factor and McKinsey found that over half of investment decisions for Chinese construction and real estate companies were made in under a month.

The US can counter to these mainly be through US government to African business initiatives, while contracts with China’s “government to government programs.

Recommendations include:

  • Niche infrastructure that fall within the US competitive advantage like renewable energy, oil exploration and urban/smarter city solutions. However on the last one, the report points out that China has made significant inroads in media, telecommunications and security services.
  • Push for anti-corruption agenda, as this will level the playing field for US companies. This can be through supporting African government efforts to investigate and prosecute corruption cases.
  • Generate a pipeline of projects, data, and trade links to assist US businesses to invest in Africa. This can be through sponsoring competitions and investor trips.
  • Support the creativity and education sectors. There is an opportunity in the entertainment spaces as recent deals involving Netflix, Mavin Records and the National Basketball Association have shown. Also a quarter of African children (66 million) could be studying in private schools by 2021.
  • US financial institutions can work towards providing working capital, which remains a great challenge for individuals and small businesses in Africa.

It also notes that more US intuitional investors have opened up to putting more funding to African venture. These include the New York State Common Retirement Fund, which has allocated $6 billion to investments in Africa and the Chicago Teachers Pension Fund that have invested in two African private equity funds.

EDIT: A story in the Africa Report shows how a new US Development Finance Corporation (DFC), which combines the Overseas Private Investment Corporation (OPIC) and the Credit Authority of the U.S. Agency for International Development’s (USAID) is part of the broader economic and trade battle led by the USA against China.  

The new organization has more latitude than its predecessors in that, it will be able to make equity investment in private firms (previously they were restricted to debt) and a restriction that OPIC could only support projects with “a significant link with the American private sector” has been removed.

Africa Netpreneur Prize Initiative (ANPI) 2019 finale set for Accra

The Africa Netpreneur Prize Initiative (ANPI) series for 2019, will conclude with an “Africa Business Heroes” televised gala in Accra, Ghana in November where ten finalist entrepreneurs will pitch Alibaba founder Jack Ma, Strive Masiyiwa and other judges.

The overall Netpreneur winner will get a grant prize of $250,000, the second place one receives  $150,000, with $100,000 to the third place one. These are among the largest financial prizes offered to African entrepreneurs and the other finalists will also receive financial grants.

Applications for this year’s ANPI opened on March 27 and over 10,000 entries were received from entrepreneur applicants. These were narrowed down by different evaluators through a vetting process and this week twenty finalists, drawn from across Africa, are doing interviews with,  a panel of expert judges at the Nailab in Nairobi. Bethlehem Tilahun Alemu, Fatoumata Ba, Fred Swaniker, Hasan Haider, Marième Diop, Peter Orth, and René Parker form the semi-finalist judging panel for this year’s ANPI. 

This all comes two years after Jack Ma’s first visit to Africa as a UN special advisor for youth entrepreneurship and small business. Dr Mukhisa Kituyi suggested that he visits Kenya as one of the countries he toured and he became inspired by a team of entrepreneurs he met at the Nailab. He then decided to support African entrepreneurs through his Jack Ma Foundation.

This is the Foundation’s first project outside of China the Prize has a mission to shine a spotlight on African entrepreneurs to be leaders of their societies in the future. It is especially focused on traditional, informal and agricultural industries and sectors, and encourages women to participate. This is a deviation from other sectors like digital, fintech, and mobile  that have attracted a lot of attention and funding on the continent. ANPI hopes to find and support 100 entrepreneurs over the next decade to be leaders across Africa.  

Through the program, they offer training at the Alibaba headquarters in Hangzhou, China, free of charge and several entrepreneurs, through the Nailab, have made that trip there. The ANPI competition remains to open to entrepreneurs in all 54 African countries, including Northern African and Western (Francophone regions). Jack Ma is expected to continue his philanthropic efforts, through the foundation, even after he steps down from being Alibaba’s Executive Chairman in October 2019.

Spanish delivery company Glovo enters the Kenyan market.

Glovo is a four years old Spanish delivery company started by Oscar Pierre and Sacha Michaud. Its headquarters are in Barcelona, Spain and Glovo has been expanding globally, and just recently begun operations in Kenya five months ago, with Morocco and Nigeria being the other two African countries using the Glovo app services.

Glovo actually means balloon in Spanish to signify the way a balloon moves easily from one place to another. Kenya has seen some new delivery companies but is yet to experience one which can deliver even a personal item that you forgot at home. We are used to the traditional delivery of items by people we know but now this app will very well facilitate an easier way. The one challenge being how safe or how trustworthy Glovo delivery people are which, and the company has placed safeguards for this.

The Glovo app is found on Google play store for Android and App Store for IoS and it doesn’t take more than five minutes to start using the app. What makes them even more competitive is their pricing which is quite the saver.

Glovo performance is improving by the day. William Benthall, the General Manager for Kenya stated that the number of Glovo bikes he’s seen around town keeps increasing with time. Just like other delivery services, with Glovo, interested partners sign up their machines, for instance, bikes, to the app and can from there, connect with clients who need items delivered.

A guest post by @themkare