The Capital Markets Authority (CMA) has released its soundness report for the second quarter of this year which indicates that the Robin Hood tax of 0.05 per cent introduced under the Finance Bill 2018 will negatively affect the capital markets “by making transactions in the sub-sector more expensive.”
The high court suspended the implementation of this tax as various stakeholders such as the Kenya Bankers Association continue to criticise it. The tax proposes that customers pay 0.05 per cent on money transfers of Sh500,000 or more sent through banks or other financial institutions.
Other budget policies such as the increase in mobile money transfers from ten per cent to twelve per cent and including distributed assets in the definition of dividends will be unfavourable for the markets.
However, policies like the establishment of the Kenya Mortgage Refinancing Company (KMRC), the revival of the privatisation program, the creation of the National Toll Fund, and the creation of the Kenya Development Bank are some of the budget policies that will have a positive impact on the industry.
Low Uptake of Capital Market Products
CMA recently released a research paper on the study of low uptake of capital market products in Kenya which highlighted the various constraints that are hindering the uptake of these products and providing recommendations that can remedy the situation.
CMA’s chief executive Paul Muthaura said: “We continue to be conscious that over the last two to three years, there has been very significant market development efforts going on around new products, new frameworks, and new initiatives but the level of actual uptake and application has been significantly lower than expected.”
He also said the regulator is keen to work with the market stakeholders to change the status quo and establish a better understanding of what the markets are capable of doing.
The Nairobi International Financial Centre
The report recommends for the accelerated growth of the Nairobi International Financial Centre (NIFC) amidst the current uncertainties in the IPO issuers.
According to FSD Africa, NIFC will promote “the development of a stable, efficient and globally competitive financial services sector that generates a high level of national savings and investments required to finance Kenya’s long-term investment needs for the attainment of Vision 2030.”
Commenting on the Tax Justice Network’s report on Kenya being a tax haven thanks to the establishment of the NIFC, Muthaura said: “They slightly missed the point. They reviewed Nairobi International Financial Centre Authority (NIFCA) and what NIFCA is trying to do as if we are trying to replicate an offshore tax jurisdiction which is not the objective. We are not building our model around offshore tax havens. NIFCA is going to play the role of providing a coordination framework amongst the existing financial sector to support greater competitiveness of Kenya and improve the attractiveness of NIFC.”
CMA’s Q2 2018 soundness report is the seventh edition since the first report was released in December 2017. The report not only identifies the problems in the capital markets but also provides recommendations for solving those challenges.