New Bill seeks to tax infrastructure bond interest to raise Sh13.4 billion annually
By Lucy Mumbi |
The new tax would apply to bonds issued in the future, replacing the existing 25 securities listed on the Nairobi Securities Exchange (NSE) and valued at Sh1.91 trillion.
The government plans to introduce a five per cent withholding tax on interest earned from new infrastructure bonds, a move expected to raise up to Sh13.4 billion annually.
The proposal is part of the Tax Laws (Amendment) Bill 2024, which seeks to amend the Income Tax Act to remove the current exemption on interest income from infrastructure bonds.
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The new tax would apply to bonds issued in the future, replacing the existing 25 securities listed on the Nairobi Securities Exchange (NSE) and valued at Sh1.91 trillion.
The proposed tax is expected to generate significant revenue for the government, with Treasury officials estimating that it could raise up to Sh13.4 billion annually from the interest paid on these bonds.
The new tax would apply to future infrastructure bonds, which are set to be issued gradually to redeem the existing securities over time.
"This exemption shall only apply to interest income accruing from a bond, note, or other similar security used to raise funds for infrastructure and any other social service project or asset defined under the Green Bonds Standards and Guidelines, as well as any other social service listed before the commencement of this proviso," reads the Bill.
Mixed reactions
The proposal has sparked mixed reactions within the market. Some financial institutions have downplayed concerns that the tax could dampen investor interest in infrastructure bonds.
However, other market players have voiced concerns about the potential negative impact of the tax on the cost of government borrowing.
Critics argue that introducing the withholding tax could increase the overall cost of financing infrastructure projects, potentially offsetting the intended benefits of the tax reform.
The critics believe that the tax might reduce the attractiveness of the bonds, particularly to international investors, who are key to funding such large-scale infrastructure initiatives.
The Tax Laws (Amendment) Bill 2024 is currently under stakeholder engagement, with consultations taking place to gauge the views of various players in the market.
As the government seeks to balance its revenue needs with the long-term sustainability of its infrastructure financing model, the outcome of the discussions will play a crucial role in shaping the future of the tax proposal.
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