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January 24, 2019

Wealth tax is not well–thought out

Customers in a banking hall in Nairobi. /FILE
Customers in a banking hall in Nairobi. /FILE

Government wants to introduce a 'wealth tax' to grab 0.05 per cent of every bank transfer over Sh500,000.

Kenya is a relatively sophisticated economy but this new tax will undermine the efficiency of our capital markets.

The tax sounds small but payments may be taxed multiple times.

For instance, a foreign investor buying Treasury bills will transfer dollars to his bank in Kenya, to be turned into shillings, and to then be sent to the Central Bank. That's three transfers that will be repeated in reverse when he receives his interest payments. So the investor can lose 0.3 percent of his money.

This will make it more difficult for government to borrow on the capital markets.

And will there be exemptions? Will transfers to KRA face deductions? Or salaries? Or payments to and from government?

For eight years the European Union has been trying to introduce a similar Financial Transactions Tax on bond and share sales. It has so far proved unworkable.

The Treasury should drop this Robin Hood wealth tax.

Quote of the day: "I have news for you, there is no Superman (it’s up to us.)"

Tom Mboya

The trade unionist and minister was assassinated on July 5, 1969.





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