Kenya’s Capital Markets Authority (CMA) is pushing for the return of the graduated preferential tax rates for new public listings in a move to encourage firms to list on the Nairobi Securities Exchange (NSE).
The preferential tax rates were scrapped through the 2020 Tax Laws Amendment Bill, effectively removing a key incentive that encouraged companies to go public.
“We had a preferential corporate tax treatment depending on how much you are issuing to the public. That was removed and replaced with a 25 percent tax rate across the board for all companies listing. What we have asked is for a reinstatement of the same in the next Finance Bill,” said CMA director, policy and market development Luke Ombara.
Previously, the Income Tax Act prescribed a reduced corporate tax rate of 27 percent for the first three years after listing where at least 20 percent of the issued share capital of the company is listed.
Companies listing at least 30 percent of their issued share capital would meanwhile enjoy a reduced 25 percent corporate tax rate for the first five years.
Firms listing 40 percent of their issued share capital would enjoy the largest incentive with the prescribed corporate tax rate set at 20 percent for the first five years.
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Thereafter, the companies would revert to the full corporate tax rate of 30 percent.
Part of omnibus memorandum
The push is part of an omnibus memorandum by the capital markets regulator to the National Treasury for consideration in the Finance Bill 2023.
Further proposals include a call for exemptions to the Procurement Act for entities seeking to list asset-backed securities such as Real Estate Investment Trusts (Reits).
The CMA has previously disclosed a proposal that would dilute the minimum subscription threshold for investors in restricted Reits from Ksh5 million ($36,630) to Ksh10,000 ($73.26) in a move aimed at boosting subscriptions to the real estate-backed investments.
Similarly, the CMA has asked for the removal of stamp duty for the transfer of assets into a Reit investment. “If you talk to potential issuers, the component of stamp duty constitutes around four percent of the total issuance cost which many find to be economically unviable,” added Ombara.
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The move to lower the threshold for investor subscriptions was set to democratise participation by retail investors, reducing the concentration from a small pool of well-capitalised entities such as collective investment schemes, banks, underwriters, pension or retirement funds.
There are currently two listed Reits at the NSE: Laptrust Imara I-Reit and Ilam Fahari I-Reit which was listed last month with a minimum subscription amount of Ksh5 million.