New mining tax will scare away investors, experts say

Gold mining in Migori County. Photo/FILE

A new tax on mining will make Kenya a less attractive destination for investors looking for exploration and mining businesses.

Under the 2012 Finance Act, the government introduced a withholding tax on the gross proceeds from the transfer of shares or property in the extractive sector.

The move was aimed at helping Kenya to plug the budget deficit created by shortfall of tax revenue.

In an update note released on Thursday, audit and consultancy firm PricewaterhouseCoopers consultants termed the new tax measure as punitive, saying it fails to take into account the necessary costs in computing tax on the proceeds.

“The changes are far-reaching and seek to tax the gross proceeds from sale of property or shares without any deduction of attributable costs, which makes the incidence of the withholding tax more punitive than would have been the case were the amendment to be in nature of a capital gains tax,” read the note in part.

Capital gains tax

Initially, the Finance Bill 2012 had sought to introduce a capital gains tax that would be exercised on gains made in transfer of shares or property in the extractive sector. This was, however, replaced with a withholding tax.

Unlike a withholding tax that is exercised on the proceeds of a sale transaction without taking into consideration associated costs, a capital gains tax applies only to gains made in a sale transaction, which are calculated after the deduction of the necessary costs.

The capital gains tax was suspended in 1985 to encourage savings and investment locally.