Kenya’s President Uhuru Kenyatta has signed into law a 5 percent capital gains tax that investors say could affect investment in property, equities and the country’s nascent oil and mining sectors.
The finance bill approved by parliament in late August will take effect on Jan. 1, changing how taxes are applied in East Africa’s biggest economy, the presidency said in a statement late on Sunday.
Kenya’s government is trying to raise funds for development projects to spur economic growth and create jobs, but analysts say such taxes could deter foreign investors.
The plans for a capital gains tax were first announced in June 2013’s budget, leading to a sharp decline in share prices as investors fretted the tax might sap the appeal of equities. The shilling also came under pressure, reflecting concerns about possible damage to the economy.
“It will have an effect, especially on equities and fixed income. Paying taxes is not something people enjoy doing. It complicates a lot of things. So I would say yes, it would really affect how foreign investors view the market,” a senior fixed income analyst at one investment bank said on Monday.
Capital gains tax was dropped by the country in the mid-1980s to attract foreign and local investment.
“I think given the fact that it is optically such a low number, and keeps Kenya at the bottom of capital gains tax… we’ll look through this and move on,” said Aly Khan Satchu, independent analyst.
“If … they are thinking of putting it higher, then I think we are in a little different situation.”
Tanzania, the region’s second-biggest economy charges a capital gains tax at 20 percent for foreign-owned firms and 10 percent for residents. Uganda has a capital gains tax of 30 percent while nearby Mauritius does not tax capital gains.