Feature of the week:
Finance Bill 2021 Tax Changes
The Finance Committee (committee) has proposed changes to tax proposals contained in the finance Bill. The Finance Bill contains tax measures that are set to apply from July 2021. We highlight these changes below.
The Finance Committee rejected:
- The proposal to introduce 16.0% VAT on bread. Bread is currently zero-rated which allows bakers to seek tax refunds from inputs charged VAT, such as electricity.
- An increase on motorbike taxes to 15.0% percent of the value of a unit from a fixed charge of KES 11,608. According to the Finance Committee this would negatively impact the use of bodabodas as it would raise the cost of motorcycles.
- The proposed elimination of 16.0% VAT on liquefied petroleum gas petitioned by the Petroleum Institute of East Africa. The VAT charge on cooking gas will result in users paying at least KES 360 more for the 13.0 kg cooking gas while the 20.0% duty. According to the committee the removal of the VAT charge would negatively impact tax revenues for the financial year 2021/2022.
- Elimination of 20.0% excise duty on fees and commissions on loans petitioned by the Kenya Bankers Association
The Committee has reduced:
- Duty on nicotine pouches by 76.0% to KES 1,200 per kilo. According to the committee, this is meant to allow the growth of the industry given it is a new investment, with BAT having already invested in a new factory for manufacture of the product.
- The excise duty on betting to 7.5% from 20.0% published through the Finance Bill 2021. According to the committee, 20.0% duty on betting would have encouraged users to opt for international betting platforms instead. The 7.5% rate is expected to encourage investors.
In our view, there was an attempt to balance the need to increase tax collections by the government and cushioning individuals from higher inflation.
However, the move to levy excise duty on fees and commissions on loans at a time when credit growth is weak and there is greater urgency to stimulate the economy is quite surprising. At the very least, the government should have postponed its implementation.
Equities Market Summary:
Nairobi Securities Exchange Performance
The All Share Index (NASI) and the fell the NSE 20 Share Index fell by 0.4% and 0.1% w/w to close the week at 171.62 and 1,899.11 respectively. Market turnover rose by 42.5% to KES 3.4 billion while the volume of shares traded edged up by 67.7% to 112.1 million shares.
We partly attribute the decline in the all share index to decline on Safaricom, which eased 1.2% w/w to KES 40.75. BAT eased by 4.1% w/w to KES 432.00 as investors continued to react negatively to the move to tax some of its products (nicotine touches) that were previously exempt. However, during the week, it was reported that the nicotine pouches would be taxed at a lower rate. We expect this to provide some stability to the share price in the coming week.
There were notable price gains on some key banking counters; Co-operative Bank (6.1% w/w to KES 13.00), Equity (4.1% w/w to KES 46.60), KCB (3.1% w/w to KES 43.85).
Overall, we expect minimal price movements in the coming week.
EABL – Long-term Buy