- They've taken issues with the decision to raise withholding tax on foreigners’ dividends by five per cent and the introduction of VAT on Stockbrokers’ charges.
- At some point between 9.30 am and 11 am, the shilling hit 106.60 against the greenback, lowest level seen since October 2011
The increase of withholding tax on dividends to foreign investors at the Nairobi Securities Exchange (NSE) could further dampen the bourse performance and hurt the Kenya shilling, experts have warned.
The recently introduced tax measures have raised the withholding tax to 15 per cent from 10 per cent and introduced a 14 per cent Value Added Tax (VAT) on stockbrokers’ charges.
The measure has since seen the Nairobi bourse shed further since Monday as foreign investors exit the market.
According to the real-time market tracker Mystock, the top tier NSE20 index at NSE has since shed 1.67 per cent in the first week of April, hitting 1982.50 points on Tuesday.
Last month, the index dropped 33.7 per cent as foreign investors offloaded stocks, as the impact of the Coronavirus kicked in.
Other indices have also dropped significantly as the bear run at NSE accelerates.
The NSE25 has so far shed two per cent in the first week of April, after losing a whopping 63.03 per cent in March while the All-Share index has lost 2.07 per cent to hit 132.72 points Tuesday.
According to CBK’s weekly bulletin, the number of shares traded and equity turnover at NSE declined by 24.7 per cent and 25 per cent, respectively, during the week ending April 2, illustrating low activities at the bourse.
Money market analysts have taken issues with the government’s decision to raise withholding tax on foreigners’ dividends, saying the move will accelerate foreign investor flight, exposing the bourse to the worst bear run ever.
According to a stock market broker Timothy Kiko, foreign investors who control the majority stake at NSE are fragile and are ready to react at the slightest disturbance, hurting performance at the bourse.
‘’Actually, it looks to me like they are hastening the collapse on purpose. Why put in draconian tax laws knowing that we literally have the sword of Damocles poised above our necks,’’ Kiko said.
Mumbai based financial service advisor Moses Harding said the government is closing doors on foreign investors who continue to show interest in the country’s dilapidating capital market.
He said Kenya needs to take comfort that offshore investors see value-buy when NSE20 has dropped value to 1850-2000 and shilling down to 106.50-110 from 100-101.50.
Economist Mihr Thakar, on the other hand, says the government should come up with friendly policies to attract foreign investors considering that dollar earnings from tourism, agricultural exports, and diaspora remittance have dropped on COVID-19 effects.
He termed the new tax policies on stock trading as draconian.
''At a time when the Shilling is weakening, you introduce measures to make foreign investors flee,’’ Mihr Thakar tweeted.
The shilling was yesterday under pressure due to dollar demand from commercial banks and importers beefing up their hard currency positions amid economic uncertainty caused by the coronavirus outbreak.
At some point between 9.30 am and 11 am, the shilling hit 106.60 against the greenback, lowest level seen since October 2011.
Calls to NSE went unanswered and neither did they respond to messages seeking their position on the new tax measures.