Entrepreneurship

TAX ALERT! (Have You Made These Necessary Adjustments to Your Payroll?)

tax alert

 

We’d like to notify our clients of changes in resident taxes:

  1. 1.The Government, through the Kenya Finance Act 2017/ 2018, revised the resident individual tax brackets and increased the monthly personal relief from KES. 1,280 to KES. 1,408 with effect from 1st January 2018. The tax bands and personal relief have been expanded by 10%.
  1. 2.Bonuses, overtime and retirement benefits paid to low income earners (income below the revised lowest tax bracket of 10%, upto KES. 12,298 per month or KES. 147,580 per annum) are exempted from tax. This will marginally reduce the PAYE burden.

Monthly Taxable Pay (KES)

Annual Taxable Pay (KES)

Tax Rate (%)

Up to 12,298

Up to 147,580

10

12,299 – 23,885

147,581 - 286,623

15

23,886 – 35,472

286,624 - 425,666

20

35,473 – 47,059

425,667 - 564,709

25

Above 47,059

Above 564,709

30

Monthly Relief: 1,408

Annual Relief: 16,896

 

Therefore, starting with the PAYE return for the January payroll that is due on 9th February 2018, employers are advised to implement the following changes to their payroll processing. It’s the responsibility of the Employer to deduct and remit PAYE, failure to which it attracts a penalty.

For further information or assistance, please get in touch with Ann through the contacts below:

 

Ichungwa Ann

Wylde International

Tel: 0701 560203

Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it. /info@wyldeinternational.com

Kenya can utilize dead Capital to spur SME growth

icon General Resources ( )The other day Dr.Bitange Ndemo wrote an article on Africa’s poverty contradiction and dead capital which evoked heated and mixed reaction across the country.

The point that Kenya has too much dead capital is what I agree with and submit that can be directed towards SMEs for their growth and well being of Kenya’s economy.

Kenyan SMEs just like other African SMEs face a variety of challenges access to finance being a major reason for their mostly untimely demise. To add to Ndemo’s definition of dead capital of investing in land for speculation purposes, Building ceremonial homes in villages; I would propose to include; Insurance and pension funds investing in buildings and safe government bonds similar to blue chip companies among many other examples of safe investments. How come investing in stocks and government security is termed as dead capital one may ask. For starters if we were to use the Warren Buffet rule on stocks where we do simple arithmetic of subtracting liabilities from assets and dividing with total shareholders you will quickly realize that most listed companies at the Nairobi Securities Exchange are overvalued hence not a good investment.

Research done by Wylde International in 2017 on the state of SME indicated that 68% of SMEs that responded didn’t access finance yet over 40% registered revenue growth of more than 10% of which 23% of the 40% registered revenue growth of over 25% ; this in light of majority of listed companies issuing profit warnings.

The challenge of financing SMEs through financial institutions is a script that is not going to change in Kenya anytime soon in light of interest rate cap and the incoming IFRS 9. Kenya needs to develop alternative forms of investments appropriate for the growth stage of an SME.

What do I mean with this; entrepreneurs are constantly innovating and toying with new ideas every so often and they need funds to test and prove their ideas and concepts. As currently constituted the entrepreneurial ecosystem doesn’t have a channel for financing ideas and start ups; what is happening is such start ups are considered too risky for financial institutions as they don’t have cash flows nor collateral in order to access financing.

Ideally what start ups need is a risk taking financier or a benevolent philanthropist who believes in changing society through enterprise. I believe Kenya doesn’t have a shortage of neither. Donations from Kenyans of all walks of life are the most appropriate form of financing for such seed or idea stage.

Once an entrepreneur proves that their idea is commercially viable they move into what is called early start up a situation in which they are formally registered company. At this point they are still considered a risk by financial institutions hence the best alternative are angel investors who can be wealthy Kenyans such as C-Suite managers, entrepreneurs among others, pension and insurance whose current default investment is land and real estate . As the SME gains product or service acceptance and begins to grow they can now be comfortably be funded by Venture Capitalist and as they progress to towards becoming established companies Private Equity.

To achieve SME financial inclusion will require concerted effort from all stakeholders and a lead by government by taking a paradigm policy shift towards supporting SMEs and finally ensuring that Kenya pragmatically leaps towards Vision 2030.

About Author

Victor Otieno is Director-Research and Innovation at Wylde International This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

The Year That Was & What SMEs Can Expect in 2018

The Year That Was 1

 (Video - What Kenyan SMEs Can Expect in 2018 (Part 1) - GOVERNMENT FOCUS AREAS)

The year that was

The year 2017 was a year full of anxiety and even turmoil for some Kenyan entrepreneurs and SMEs. Typically , Kenya's election years are usually characterized by a "wait and see" atmosphere. This year was no different However, this election was rather special. We ended up having 2 elections, 2 supreme court petitions, 2 nail biting rulings and eventually an inauguration celebrated by the ruling party's supporters and shunned by the opposition. This scenario prolonged it from a "wait and see" to a "lets talk after all the election madness is over" . The prevailing drought situation affected agricultural output which is a big part of our economy and further dampened the mood in the country. MPs passed a bill capping interest rates at 14.5% in a move to stem the high interest rate regime. However, as the government borrowed heavily to fund its operations and service its every growing debt, lenders shifted their attention to lending government and not SMEs, pushing SMEs into a corner where funds were not available for their operations. In short it was a tough year and many entrepreneurs felt like they were between a rock and a hard place. Some shut down, some became politicians(temporarily if they lost) and some strengthened their faith in order to keep the doors open. Everyone held on to their money. No new ideas or programs were being funded. Everyone adopted the excuse " lets talk after elections" . Payments were withheld. If there is a time to begin planning for the next election, its not 4 years from now, its NOW.

The year to come

Despite the bleak 2017, the Future looks a lot brighter. What can we look foreward to in 2018 and beyond?

Despite the continued low key political risk that threatens to blow up into protests at any given time, we are likely to see a number of trends in 2018 and beyond

Interest rate capping reversal.

In 2018, we are likely to see a Reversal of the 14.5% interest rate capping. The central bank governor has already signaled that they will be pushing for its reversal based on a study of its devastating effects towards SME lending and unsecured lending in general. There is likely to be intense lobbying from lenders as well as other key stakeholders for the reversal. Should the reversal happen, lending towards SMEs will resume against a backdrop of a growing post-election economy.

Foreign Direct Investment

Whilst Kenya saw a dip in foreign direct investments in 2017, it is likely that foreign investors will troop back into the country citing a more stable political environment and clear policy direction from the Kenyan government. Many deals that were in negotiation phase in 2017 were put on hold pending the election outcome and those negotiations are likely to be revived within the first quarter of 2018. There has been increased interest in Kenya by American, Chinese and a few European union countries like France in making investments in Kenya. Sectors of interest have been agriculture, energy and construction. This will present an opportunity for SMEs to position themselves as service providers or partners for the foreign investors. There will also be an increased appetite for mergers and acquisitions as an entry strategy by medium or large multinationals into the East and Central African Market.

The Nairobi Securities Exchange

The stock market is also on the upward trend, something that happens after every election. This usually acts as a signal of the confidence that international investors have in our economy.Since we have continued to experience Economic growth, smart SME owners will invest extra income into strategic companies that are poised to keep generating great returns in the next few years before the next election cycle begins. We are yet to see any major entrants into the GEMS SME segment of the NSE due to the complicated nature of listing and the fear of Kenyan SMEs to open themselves up to public scrutiny.

Government Focus

The president in his inauguration speech made some bold declarations. Like visa on arrival for all Africans. This set the tone for other bold pronouncements and the government has since set out to focus on 4 main areas.We are likely to see growth and opportunities for SMEs in these sectors .The details are still sketchy but here is what we know so far.

  1. Housing – The government plans to build 1 million houses in the next 5 years. Which translates to roughly 200,000 units a year, A feat never seen before in Kenya. Will they uphold the promise despite the demand for housing growing by an estimated 100,000-250,000 units against a supply of 50,000 yearly? We wait to see.
  2. Universal Healthcare – Again the details are still not clear but the government plans to invest in ensuring there is 100% universal health coverage (UHC).
  3. Food Security and Agriculture – The government has set a target of 100% food security. Details yet to be released.
  4. Manufacturing – The government has set a target to have manufacturing account for at least 20% of the GDP. We are currently at an estimated 14% of GDP.

The government has also began a project to set up incubators and hubs in every constituency through the ICT ministry to support entrepreneurs to grow their businesses.

An announcement was made in 2017 that we achieved Category A status for JKIA which should see an introduction of direct flights to North America from Kenya. This should boost trade and tourism between Kenya and North America and potentially latin america as well.

One compliance body to watch out for is the Kenya Revenue Authority. Several plans have been put in place to rope in additional taxpayers to fund the governments increasing debt and budget. 2017 was the slowest growth in a decade of tax collection in a year where succession plans are in high gear. Will a new broom sweep clean in KRA and will this sweep more evaders into the tax net? A robust itax system together with a business intelligence system linked to the banking as well as government procurement systems will definitely nab more tax evaders and so SMEs that are not yet compliant should note that the authority is closing in on them and soon there will be no easy avenues to hide from paying tax on all business income activities.

On a sad note, the government has announced impending layoffs of 18,000 workers to tame the wage bill and concerns continue to mount over our indebtedness particularly to China.

The world bank has pledged support of approximately USD 150 Million through the Kenya Youth Empowerment Project , that will go to supporting employment creation, entrepreneurship and scaling of SMEs. It is likely that other donors will follow suit in funding similar projects especially agricultural and value chain support programs.

We are likely to see increased Mergers and acquisitions as international players from larger markets seek to aggressively enter the east african market. European, South african, asian and American companies are actively seeking to partially or fully acquire local SMEs who have substantial traction and growth.


 (Video - What Kenyan SMEs Can Expect in 2018 (Part 1) - GOVERNMENT FOCUS AREAS)


County opportunities

A few progressive counties are likely to have great opportunities. If the governors keep their promises . Nairobi county is heavily backed by the central government and its initiatives are likely to face less opposition and budgetary challenges in order to prove a point. Lamu with the LAPPSET project plodding along also benefits from a large state project that is attracting development. Other counties to watch are Machakos, Kakamega and Makueni who have had relatively progressive and development oriented incumbents who will benefit from continuity. Kitui , Kisumu, Kirinyaga and Meru have new governors who have made bold declarations for development and have governors who were previously cabinet ministers who had a track record for development in their respective ministries .

Education

Due to the entrance of the over 1 million kids from the Free Primary Education era into high school a year , there has been an increased demand for private secondary school education. With a transition rate of less than 80% , there is currently a shortage of secondary schools to absorb the primary school graduates. As top schools are forced to introduce day wings, there will be concerns from parents on the quality of education and this is likely to build even higher demand for private secondary schools as happened in the primary school section.

Agriculture

Should there be no drought in 2018 and beyond, there should be improved agricultural harvests. Government investment in food security as well as the increased investments from private capital sources into agriculture (chamas, investment companies and middle class from urban areas) is likely to grow the sector and its output.

ICT

Despite the growth of innovations in ICT, a proposed ICT bill is likely to stifle innovation and service provision. We are likely to see a growth of the importance of DATA collected by organisations which will increase the demand for data scientists or entrepreneurs with data oriented solutions. There will however be increased concerns about data protection and privacy and calls for increased regulation around privacy.

Mobile lending

Mobile lending that has already been on an upward trend will grow and we are likely to see lenders finding ways of approving larger loans than the current micro loans that have proven successful for banks as well as new micro lending entrants into the sector.

Regional Opportunities

As the region invests more in infrastructure you are likely to have companies , government agencies and development bodies from neighbouring countries turning to kenya for certain expertise. Ethiopia, Somalia, Uganda, rwanda and Tanzania despite the hostility will seek collaborations in kenya that can complement their growth initiatives. The EAC will likely strengthen its trade ties.

Globally, Agriculture remains a great opportunity for Africa as demand for agricultural products for China , US and European markets particularly for Herbs , spices, condiments , specialty foods and meat products grows. etc Our challenge in meeting this demand is the ability to produce consistent quality and ability to supply large quantities of products to wholesale buyers in these large markets.

As a region I see the opportunities for SMEs outweighing the risks and opening up a world of so much potential for Kenyan entrepreneurs who have already braved 2 elections with a lot of resilience and innovation to stay afloat.

 

About the Author:

Joram Mwinamo is the CEO of Wylde International, and a Strategy and Entrepreneurship Consultant. He can be contacted at This e-mail address is being protected from spambots. You need JavaScript enabled to view it.