Sunday, May 26, 2024

Kenyans who want to invest in infrastructure bonds to pay 5% withholding tax

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For Kenyans who seek to invest in the medium to long term, infrastructure bonds have been an admirable option. Their biggest attraction have been zero tax on returns. But now infrastructure bonds are set to lose their allure if the recommendations of the controversial Finance Bill 2024 are anything to go by.

According to the Bill the government through the National Treasury is proposing to impose a 5 per cent withholding tax on returns. 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.

Incidentally, this proposal comes in the wake of complaints from investors who noted that the government’s computation for the coupon payment for the security IFB1/2023/6.5 that was due to be paid on May 13, 2024 had less payment than was expected.

Whereas Kenyans will pay a 5 per cent withholding tax on infrastructure bonds, foreigners will be hit with a 15 per cent tax on the same bond, experts have suggested. For instance, Mbiki Karanja, a tax manager at Grant Thornton told Bloomberg that while the rate for domestic investors has been announced at 5 per cent, the rate for foreign investors has only been implied.

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“With no reduced rate being provided for non-residents, the applicable withholding tax rate will be 15 per cent,” he was quoted.

Apart from the infrastructure bonds, the National Treasury is also proposing taxation on income earned on Trust Funds. The proposed Finance Bill 2024 has left Kenyans in shock with the list of proposed punitive taxes that have included taxes on bread.

In the proposed Bill, Kenyans will also be required to pay annual taxes for owning vehicles. They will also pay additional taxes on airtime and financial transactions including bank transactions.

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