Investing in Kenya’s infrastructure bonds is set to become a costly affair following plans by the National Treasury to reintroduce a controversial proposal for withholding tax on gains made from these bonds.
Since their introduction in 2009, infrastructure bonds have been an admirable option for investors, thanks to their zero taxation on returns.
However, the bonds will now be subjected to taxation for the first time if the proposal by the National Treasury is approved by parliament.
According to the proposal, infrastructure bonds with a tenure of at least three years shall be subject to taxation at a rate of 5 per cent.
This will see bond with a tenure of at least 3 years join Treasury Bills in the withholding tax bracket. Treasury Bills are currently subjected to a 15 per cent withholding tax on returns.
This proposal was initially contained in the controversial Finance Bill 2024 that triggered deadly nationwide protests in the month of June.
In the initial proposal, whereas Kenyans were to pay a 5 per cent withholding tax on infrastructure bonds, foreigners were to be hit with a 15 per cent tax on the same bond.
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Mbiki Karanja, a tax manager at Grant Thornton, had told Bloomberg that while the rate for domestic investors had been announced at 5 per cent, the rate for foreign investors had only been implied.
“With no reduced rate being provided for non-residents, the applicable withholding tax rate will be 15 per cent,” Mbiki had been quoted.
2024 has seen investors lock some of the highest gains on IFBs. In February for instance, investors locked an IFB at a return rate of 18.4607 per cent.
