Kenyan bankers and fund managers have warned a proposed “Robin Hood” tax on many transactions will threaten the future of one of Africa’s most vibrant financial services sectors, its capital market and investment environment.
The 2018 finance bill, published last week, includes a 0.05 per cent excise duty on “money transferred by banks, money transfer agencies and other financial service providers” in amounts of more than Ks500,000 ($4,950).
The Kenya Bankers Association said the proposed tax would “have wide-ranging implications on the economy including through the interbank market and international trade and investment”.
John Gachora, managing director of NIC Bank and KBA vice-chairman, said that if the legislation was taken at face value it “will not auger well for the markets”. “I would be opposed to such a tax,” he said.
Kenya is the centre of the financial services sector in east Africa, with many international banks basing large operations in Nairobi. The industry is a mainstay of the economy.
Einstein Kihanda, head of Kenya’s fund managers association, said he wanted to “fight” the proposal because it could “cut up to 5 per cent off many investors’ annual returns”.
“As written, it affects almost everything we do across the financial services sector,” he said, highlighting the fact that many trades, particularly of bonds, often involve four transactions.
“When you go to the wider economy the higher cost of transactions means traders will minimise activity, which affects liquidity and the attractiveness of the capital market,” he said. “You will end up informalising the economy at a time when the government is trying to grow the formal economy and the capital market.”
Both associations said they were consulting their members and would then raise their concerns with the government.
Henry Rotich, the finance minister, described the duty when he announced it as a “Robin Hood tax” for “the government to get a fair share of revenue from these financial activities and to finance critical programmes”, particularly universal healthcare.
Neither he nor senior ministry officials responded to requests for reaction to the industry’s opposition or for further clarity on the proposal.
Some bankers and analysts speculated that the proposal was a quid pro quo for scrapping a previously mooted plan to increase the upper bands of both corporate tax and personal income tax from 30 per cent to 35 per cent. These would have made Kenya the highest tax jurisdiction in east Africa.
“This excise duty might be less onerous for us than higher corporate tax would have been,” one banker said.
Lucie Villa, an analyst at Moody’s Investors Service, a rating agency, said the lack of details about the proposed tax meant it was premature to comment on the tax’s likely impact.
But she added: “Kenya’s vibrant financial services sector is one of its assets. Taxing the industry can be seen as impairing the asset.”
Jonathan Stichbury, chief executive of fund manager Sanlam Investments East Africa, said the proposal was “effectively a tax on investments”.
“It’s a nice idea but the reality is financial services are a high volume and low margin business,” he said. “It could have an impact on investors and the appetite of international investors for Kenya.”
Mr Gachora said one alternative to the Robin Hood tax might be to increase the duty on charges of transactions above a certain level rather than tax the principal. In his budget this month Mr Rotich proposed increasing mobile money transaction charges from 10 per cent to 12 per cent.