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- Inside Finance Bill 2024, Safaricom's Plan to Break Even in Ethiopia
Inside Finance Bill 2024, Safaricom's Plan to Break Even in Ethiopia
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Kenyan Wall Street
May 13, 2024
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What's Inside
Finance Bill 24/25: Taxes, New Powers for KRA
The legislative process for the next fiscal year’s budget will begin today, when the Finance Bill 2024 undergoes its First Reading in a special sitting of parliament.
In a bid to boost tax revenues, the bill proposes a raft of new tax measures and powers for KRA that are bound to be controversial. Several of them will raise the cost of crucial goods and services significantly for both individuals and businesses.
The government plans to remove VAT exemptions for banking services, which means services such as lending and FX transactions will now be subject to value added tax.
The bill also maintains excise duty on multiple financial and telecom services at 15% for money transfer services, telephone, data, and at 12.5% for betting and gaming.
It also maintains 20% excise duty on fees charged by digital lenders, and introduces a similar rate for fees charged by banks.
The bill intends to replace the current 1.5% digital services tax with a Significant Economic Presence Tax which would see some foreign digital businesses pay 30%. It also raises the tax obligations for Kenyan digital businesses to five percent, while foreigners will pay 20 percent.
Multinationals with turnover of KShs 105bn will pay a minimum top up tax calculated as 15 percent of net income minus the actual tax rate, multiplied by excess profit. The bill also introduces an eco levy “to ensure that manufacturers and importers …pay for the negative environmental impacts” of certain electronics and goods such as tyres and diapers. In addition to other taxes-such as 10% for the importation of phones-this could raise the price of the goods significantly.
Among the most controversial changes are a removal of VAT exemptions on bread, and the introduction of a 2.5% annual tax on the value of cars which will be bundled with insurance covers. The law will also replace the current flat tax rate for imported motorcycles beyond a certain price point with a 10% of value tax.
For KRA, New Teeth
The new law proposes to give the taxman powers to demand that taxpayers intergrate eTIMs into their invoicing process, or risk up to KSh 2 million in penalties for non-compliance. Given the slow uptake of the system by SMEs, this particular proposal seems aimed at both pushing for compliance by small businesses.
Controversially, the bill also grants KRA certain exemptions to data protection laws. If passed, it would amend the law to allow disclosure where “necessary for the assessment, enforcement or collection of any tax…” In addition to data protection concerns, the eTIMS system, for example, has been an issue for the medical profession where services carry a high expectation of privacy.
Combined with a separate proposal to expand KRA’s ability to demand agents who owes a taxpayer to deduct unpaid taxes, this represents a significant expansion of revenue collection powers.
Read the whole bill here.
Price is what you pay. Value is what you get.”
Trader’s View: Trading US Stocks, Indices and Currencies During Turbulent Periods
In the latest in our Trader’s View series, Terence Hove, Senior Financial Market Strategist at Exness, discusses how to trade in US assets like stocks, indices and currencies during turbulent periods. Using Contract for Differences (CFDS) offered by the locally licensed multi-asset broker, traders and investors can profit from upward and downward price movements without owning the underlying asset.
Safaricom Plans to Break Even in Ethiopia in 2025
Safaricom Plc released its financial results for the full fiscal year of 2024, reporting robust earnings propelled largely by its M-Pesa mobile money platform.
Despite the losses in its Ethiopian venture, the telecommunications giant reported a significant surge in profits, which excluding interest and tax expenses in Kenya, soared by 20.4% to Ksh 139.9 Billion, surpassing earlier guidance of Ksh 129 Billion to Ksh 132 Billion.
Including Ethiopia unit, Safaricom’s Earnings Before Interest and Taxation (EBIT) grew by 3.5% to Ksh 94.9 Billion
Safaricom’s service revenue across the group saw a notable increase of 13.4%, reaching Ksh 335.4 Billion, with net income hitting Ksh 63 Billion, a growth of 1.2%.
Safaricom's Ethiopia unit has sustained its rapid growth, but it is still in a capital intensive phase. It has doubled active customers from 2.14 million in the year ended March 2023 to 4.35million by March 2024. MPESA in Ethiopia, which Safaricom launched in Q2 FY 24, now has 4.5 m customers, earning the company KShs 87.3mn in revenue.
“In FY25, we expect Group EBIT to be in the range of KShs 103-109Bn and Group Capex to be KShs 73-79Bn. EBIT guidance for Kenya is expected to be in the range of KShs 149-152Bn and Ethiopia EBIT loss in the range of KShs 46-43Bn,” Safaricom CEO Peter Ndegwa said.
The company is set to pay 55% of its license obligations in Ethiopia in June. It predicts that at its current growth rate, it can breakeven -in EBITDA-in FY 2026 (March 2025-March 2026) at a commercial scale of 15-20 million customers and over 4,000 sites.
Don't forget to attend these events...
Name | Location | Date |
|---|---|---|
Kigali, Rwanda | May 16-17, 2024 | |
Lagos, Nigeria | May 25, 2024 | |
MSK Marketers Conference | Mombasa, Kenya | May 29-31, 2024 |
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Long-serving DTB Group CEO and DTB Kenya CEO Nasim Devji is set to relinquish the latter position to a country-focused CEO.
Interview of the Week
Absa Kenya’s Director of Consumer Banking on how the lender is shifting its strategy towards meeting customers where they are by opening more branches, leveraging its digital capabilities, and building its agency banking network.
Tiny Bitcoin Miner Set to Rival Industry Giants
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Have a great week!