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- Kenyan Government proposes to raise withholding tax to 15 percent to realise higher tax revenue from dividends
- The Tax (Amendment) Bill 2020 proposes to raise withholding tax (WHT) on dividend income
Kenyan Government is mulling a proposal to raise withholding tax to 15 percent to realise higher tax revenue from dividends. A withholding tax is an income tax that is deducted from the income due to the recipient and paid to the government by the company that has generated the income.
The Tax (Amendment) Bill 2020 proposes to raise withholding tax (WHT) on dividend income for non-residents from the current 10 percent to 15 percent. If approved, it will reduce the dividend income for multi-nationals and other foreign investors in listed firms. The proposed amendment will, however, exclude foreign investors from countries with whom Kenya has signed double tax agreements.
Kenya Association of Stockbrokers and Investment Banks (KASIB) has cautioned that such a step will dent Kenya’s image as an investment destination. KASIB pointed out that, particularly in the context of Africa Continental Free Trade Area,(ACFTA) investors will prefer countries with favourable corporation tax regime and access to the wider Africa market. It added that big foreign investor funds preferred to invest in emerging markets with high returns and stability. Kenya which is viewed as a frontier market by investors will lose its sheen with a higher WHT tax.
According to reports, foreigners holding accounted for 30 percent stake in 20 NSE firms by the end of December last year and accounted for up to 70 percent of trading activities. Standard Chartered Bank Kenya and Equity Group are 76.83 percent and 41.83 percent owned by foreign investors. In Stanbic Bank, Foreigners hold 83.68 percent. Apart from the proposed hike in WHT, the state also wants to introduce a 14 percent value-added tax on stock brokerage services, which will be again passed on to investors which will make buying of shares further expensive.
