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"speaker_name": "Mr. Billow",
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"content": "Thank you, Mr. Temporary Deputy Speaker, Sir, for giving me this opportunity to contribute. Some of the issues that have been raised in this Finance Bill are remarkable. I want to spend my time on those that I think the Minister should have re-considered. I want to start off with Section 17. On that Section, there is an attempt to tax the gains and profits arising from \"call centres\". There is a trend where countries in Europe and the United States of America (USA) are using Third World countries for transmission of telecommunication equipment. In my view, introducing taxes on gains and profits arising from that business, at this very early stage when the industry is being introduced, would act as a dis-incentive. We are looking at employment creation and investment that is coming in through those \"call centres\", and through the use of the internet by non-residents or companies that are based outside the country. Mr. Temporary Deputy Speaker, Sir, many countries, including India and others, are earning huge sums of money out of that. Employment is also being created. I think it would be a bit un-competitive, if we start taxing the gains or profits arising from businesses of that nature. In my view, the Minister needs to be cautious on that. Mr. Temporary Deputy Speaker, Sir, Section 20 is on companies that wish to list on the Nairobi Stock Exchange. The Minister has allowed for capital expenditures and legal costs. That, I think, was intended to encourage more companies to be listed on the Nairobi Stock Exchange (NSE). But one of the concerns that I wanted to express is: It appears that most of the companies which are listed are owned by the Government. Many private companies that are listed on the NSE have a very small portion of their total share capital in the hand of Kenyans. About 80 per cent of the shares are held by the owners of the companies. So, you find a company like the Nation Media Group listed on the NSE. However, when you look at the percentage of the total share capital that is listed on the NSE, it is negligible! The same thing happens with many other private companies. Therefore, it would appear like all the players in the capital market only wait for Government companies to float their shares. I think that is wrong and there is need for the Government to not only encourage people to invest in shares, but also set limits so that if a company wants to list its shares on the Nairobi Stock Exchange and it wants to benefit from incentives such as being allowed capital expenditure, legal costs and so on, then the company has to off-load a certain minimum amount of shares, say, 40 per cent or 50 per cent of its share capital to Kenyans. That is something that we need to do so that we encourage more people to invest in some of the private companies that are performing very well in the stock exchange. There is also need to overhaul the operations of the Capital Markets Authority (CMA). We do not want to be faced with a situation similar to the one that happened to Uchumi recently. CMA is an organisation that has the responsibility of monitoring the performance of companies which are listed on the stock exchange. There are rules for listing and there is compliance to corporate governance under the CMA. It is important that the CMA strictly ensures that companies restrict themselves or comply with the requirements of corporate governance as required by law, so that members of the public who invest in those companies are not defrauded, thereby losing their money. Mr. Temporary Deputy Speaker, Sir, you have seen the incentives that I have mentioned being given to companies that want to list on the stock exchange. There are also many other incentives which are given to what are called \"companies in the modern sector\". The incentives include anything from duty waiver to VAT waiver whenever there is importation of equipment, raw materials and so forth. However, the same incentives are not given to the Small and Micro- Enterprises (SMEs). In spite of the fact that we passed a policy paper on the SMEs last year, much of the provisions on SMEs policies that we passed here are not being reflected in the Minister's 3268 PARLIAMENTARY DEBATES October 31, 2006 Budget Speech. The only one that I need to mention, and is positive, is the introduction of a turnover limit of Kshs5 million. I truly find that to be remarkable. This means that if your company's turnover is less than Kshs5 million, then you only need to pay an income tax of Kshs150,000 or 3 per cent whatever is lower. That is, indeed, a remarkable principle. For a long time, we have been agitating for a different tax regime for SMEs. You cannot have the same taxation regime for a small businessman in Kariokor or River Road whose turnover is only Kshs3 million or Kshs4 million and a company the size of BAT or East African Breweries Limited. It is not fair to subject them to the same level of income tax percentage payable or the same level of VAT or PAYE payable. You really cannot have that kind of thing. We need to have a different taxation regime for SMEs so that we can encourage our companies to grow. We have a situation where SMEs do not grow because they have no incentives. They do not have a lobby group. Big companies like the Kenya Association of Manufacturers have lobby groups. Other big firms have similar lobby institutions that lobby for them, but SMEs in the rural areas have nobody to lobby on their behalf, and yet they pay the same 16 per cent VAT. In fact, they used to pay the same amount of tax. I am actually happy that the Minister was able to limit the threshold of the turnover to Kshs5 million. I am equally happy that he was able to increase the VAT threshold to Kshs5 million. I still think that, that is grossly inadequate. Imagine a firm whose turnover is Kshs5 million and it is subjected to the same tax requirements as a company whose turnover is Kshs50 billion or Kshs60 billion. A good example is Safaricom. I think that is not fair and it is high time we introduced significantly lower tax regimes for the SMEs. At the same time we need to introduce incentives to the SMEs so that they can employ people. If a company can employ five people or ten people, then it should be given a certain type of tax exemption. I think this kind of incentive will encourage small enterprises to employ more people. We must appreciate that the fastest growing sector in our economy is the small and micro enterprise. It is not the large companies. The so-called modern sector does not contribute or employ more than 10 per cent of the total labour force of this country. Eighty per cent of employment in this country is in the small and micro enterprise. Yet, we focus all our attention and incentives on that small modern sector, because it has got the might to lobby. I would like to also appeal to the Minister to, in the introduction of the electronic tax registers, consider small enterprises. We should not force them to introduce tax registers in the same way we expect supermarkets to instal those registers. Some supermarkets are not paying taxes. I have given an example of the largest supermarket in this country that was not paying taxes. It was using briefcase companies to import goods on its behalf. Those briefcase companies do not pay VAT. You will find that the goods such companies import find their way into supermarkets that do not pay tax. Yet, you ask the small micro enterprises in Karatina, Nyeri and other small villages to introduce tax registers, so that you make sure that they pay tax on every penny that they make. I think it is important to introduce a tax regime for small enterprises, so that we encourage our small industries to grow. I have also a problem with the introduction of the Capital Gains Tax. I appreciate that the Minister needs to raise taxes, but for a long time we have not had this tax in this country. One of the reasons why I find it unacceptable is that it is going to retard real estate growth. One of the major challenges that we have is lack of housing. How are we going to encourage growth in the housing sector if we introduce the Capital Gains Tax? How shall we reduce the cost of acquiring of houses to make it affordable to civil servants and other Kenyans if we introduce the Capital Gains Tax? These are some of the issues we need to look into. I think it may not be the most appropriate thing to do. It is important to realise that, with the increasing poverty and cost of living, we do not burden Kenyans with additional taxation, particularly in the housing sector. Mr. Temporary Deputy Speaker, Sir, under Clause 25A, the Minister provides that if you file a claim for a refund fraudulently, you have to be penalised by being made to pay twice the amount of the claim that you have made. I find this a bit arbitrary because of the manner in which it October 31, 2006 PARLIAMENTARY DEBATES 3269 will be worked out. I also find it a bit unfair. First of all, if you are going to claim any refund, it must be subjected to audit by professional audit firms. Secondly, even if you make that mistake, it should be noted that the KRA makes many more mistakes when it assesses taxes. Many times, the KRA over-charges people because of errors it makes in the assessment of taxes. Yet, no liability arises against the KRA, neither is it charged the same penalty. It does not even pay any interest. In addition, VAT refunds from KRA take more than six months, or even nine months in some cases, to be paid, and yet it is not required to pay interest on money that it delays to refund. So, I find it unfair to introduce this penalty. In taxation, there has to be equity and fairness. You should not always overburden the taxpayer. The taxpayer is the goose that lays the golden egg. You should not just penalise the taxpayer all the time for mistakes made by the KRA. It is important to look into that. The Minister also proposes that unclaimed dividends which remain in an account for seven years have to be surrendered to the Capital Markets Authority. I find that a bit strange because such money belongs to companies. It should thus be ploughed back to the companies concerned. The Most important issue that I want to raise is on the Central Bank of Kenya. In Clause 32, the Minister proposes that there should be vetting of commercial bank officials with regard to their professional and moral qualities. This is a very important proposal. As a matter of procedure, for the last very many years, the Central Bank of Kenya (CBK) has been carrying out what they call \"fit and proper\" kind of audit. You submit your papers if you are going to be appointed as one of the directors and they would vet to see whether you are fit and proper to become a director. The Minister now says that they need to also look at the moral qualities in terms of integrity and other matters. All this is well. However, what happens in reality is that in spite of the fact that all these things are there, a number of people who do not even fit to run a kiosk are allowed by the Central Bank of Kenya (CBK) to become directors in banks. The law is very clear that, for example, if you have been convicted of any crime before, or if you have been responsible or been a director in a failed bank, you cannot subsequently be appointed as a director, yet we have seen many directors who have been involved in banks that have failed before and fleeced Kenyans being re-appointed. We are saying that in spite of the fact that there is a provision here provided by the Minister, the issue of enforcement---"
}