Business round up

VAT exemption in 2010/2011 is in regional interest - PWC Price Water House Coopers (PWC), a global consultancy firm has said the removal of Value Added Tax (VAT) on petroleum products and mobile handsets demonstrates the government’s progress in harmonizing its laws with those of other EAC countries. In his maiden budget speech last week, John Rwangombwa the Finance Minister announced two major VAT proposals to be adopted by the government in the new financial year 2010/11. Rwangombwa proposed the removal of VAT on mobile handsets and import duty on SIM cards to increase penetration of telecommunication services to the lower segments of the population. He also proposed removal of VAT on petroleum products while the specific tax of Rwf250 per litre of diesel and Rwf283 for petrol will replace the current ad valorem excise duty rate. “The proposed amendments demonstrate the Governments commitment to harmonize its tax laws with other EAC Partner States,” PWC says in its budget analysis report published this week. However PWC warns that the proposed VAT exemption may result in additional VAT costs to stakeholders in the petroleum sector due to non- recoverable VAT. While the removal of VAT on mobile handsets will make handsets cheaper, PWC says 3 percent increase in excise duty on airtime is likely to have a negative impact. “The mobile handset suppliers may be unable to claim all their input VAT, and as a result may attempt to pass on this additional cost to their customers,” the firm said in a statement. KCB plans rights issue at 21 percent discount Kenya Commercial Bank said its planned rights issue will be offered at a 21 percent discount, as it seeks to raise 15 billion (Kenyan) shillings to boost its core capital and fund regional expansion. Kenyan’s largest lender by assets has a core capital ratio to weighted assets of just over 8 percent and 12 percent to loans, the bare minimum, and so needs to raise extra cash to help it grow long-term lending to mortgage borrowers. “We want to continue growing our business in the region and we have hit that level where any new growth has to come from additional capital,” Martin Oduor-Otieno, the bank’s chief executive said in a statement on Tuesday. The bank is issuing 887 million new ordinary shares at the rate of two for every five held, after originally looking to sell 1.1 billion shares. The offer opens on July 1 and closes on July 23. Its shares were trading at 21.00 (Kenyan) shillings at 0745 GMT, up from the previous close of 20.75, and analysts said the pricing of the issue would be well received by shareholders. “KCB trades on a Trailing PE of 10.00 and is the least expensive of the big capitalisation banks on this metric. Value investors will further appreciate the opportunity to upscale their exposure at a 20 percent discount to the prevailing price,” said Aly Khan Satchu, an independent analyst. Increased gov’t spending to boost the service sector The service sector is expected to return to faster growth this year on account of increased government spending in the sector, a senior official has said. The sector is also projected to grow faster and reach 7.6 percent in the Financial Year 2010/2011 after under performing last year with only 4.3 percent growth down from 11.5 percent in 2008. This was mainly due to the fall in global demand and tightened banking system credit conditions. In an exclusive interview with Business Times on Tuesday, John Rwangombwa, the Minister of Finance and Economic planning said the sector is expected to rebound to growth this year following strategic investments by government. Government plans to increase spending by 9 percent in the Financial Year 2010/11. “The investment we are making in the airline, airport, the hotels, convention centre; all this will have to create the enabling environment for increasing our tourism receipts. Looking at the performance of tourism over the past years -it has doubled and we expect to see that continuing,” he said. Rwangombwa observed that while government is focusing on improving exports, tourism is projected to be the highest revenue earner for Rwanda. Government expects to generate $206 million from tourism this year, up from $174 million last year. The sector is project to generate $237 million in 2011. The recovery of the sector will also be boosted by a rebound in economic activity and increased financing for sub-sectors and increased investment in telecommunication. Tax incentives to attract SMEs listing In an effort to enable Small and Medium Enterprises (SMEs) and other companies to raise long term capital and savings, a number of tax code amendments on tax income and Value Added Tax (VAT) in regard to capital markets business are being worked upon. According to the Capital Markets Advisory Council (CMAC), the SMEs do not need stringent regulations to participate on the capital markets. “Its our initiative to help SMEs raise long term funds through SMEs segment market which seeks to raise funds through equity and debt markets,” said Olivier Kamanzi Deputy Executive Director of CMAC. Some of the incentives designed for the SMEs include writing off all the costs that they will incur in the process of listing once they succeed in listing. The corporate income tax for SMEs will also reduce from 30 percent to 20 percent if they sell 40 percent of their shares through capital market. Kamanzi also added that the incentives have an overall objective of stimulating the market and increase the number of products, savings and savers as well as increasing the number of external investors. The capital market to be effective in mobilizing savings efficiently as many sectors of the economy as possible should be represented in the capital market. Ends