Kenya Fund Managers Warn New Transaction Tax May Curb Investment

(Bloomberg) -- Kenyan fund managers slammed a new tax on financial transactions, saying it risks inhibiting trading and reducing the country's attractiveness to investors.

Forcing the government to rethink the levy would curb the revenue it needs to implement President Uhuru Kenyatta's Big Four agenda -- a development program that seeks to boost agriculture, manufacturing, healthcare and home construction. The tax is one of a raft of levies announced by Treasury Secretary Henry Rotich in his annual budget last month to fund record spending of 2.53 trillion shillings ($25 billion) this fiscal year.

The demand that a 0.05 percent tax be paid on amounts in excess of 500,000 shillings that move through the financial system, dubbed by Rotich as a Robin Hood tax, could cut investment returns in the pension industry by as much as 5 percent, Einstein Kihanda, chairman of the Fund Managers Association, said in a letter addressed to Rotich.

“The likely impact of this action is asset shrinkage, reduction in private savings and because it actually incentivizes investors to minimize trading activity, a decline in the liquidity of our capital markets,” said Kihanda, whose industry body represents members who manage 1.2 trillion shillings of assets.

‘Stark Contradiction'

Rotich said the Robin Hood tax would be used to help fund the healthcare program envisaged in the Big Four agenda to provide universal medical coverage.

The Kenya Bankers Association, the main financial-industry lobby group, filed a lawsuit on Monday challenging the constitutionality of the proposals. It said the tax wasn't subjected to public participation and that computer software used by banks aren't configured to support the charges.

“The outcomes are clearly in stark contradiction to the government's financial-markets development agenda and reforms to deepen the financial markets that the Treasury has laboriously worked to implement,” Kihanda said, urging Rotich to reconsider the introduction of the tax.

To contact the reporter on this story: Adelaide Changole in Nairobi at achangole2@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Vernon Wessels

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