Investors in the Talanta Sports City Stadium are set to enjoy full interest earnings with no tax obligations, walking away with full returns. This is a result of tax exemptions on government-issued infrastructure bonds, unlike Treasury bonds, which are subject to a Withholding Tax (WHT).
Investors in treasury bonds with a maturity of less than 5 years pay a withholding tax of 15% while those with bonds with more than five years of maturity pay 10% to the taxman. Treasury bills and corporate bonds are subject to 15% withholding tax.
“Interest income accruing to Noteholders from the Notes issued under this program shall be exempted from withholding tax pursuant to Paragraph 51 of the First Part of the First Schedule to the Income Tax Act,” reads the offering memorandum.
The slightly oversubscribed bond with a yield of 15.04% has an estimated total redemption amount of Sh102.42B, with Sh57.6B as interest and the rest as the face value.
Not only are the investors free from withholding tax, but also free from tax charged on profit made when the bond is sold at a higher price than the buying price – capital gains tax (CGT). In Kenya, CGT is normally 15% of that gain.
Apart from the tax exemptions boosting investor confidence and increasing participation, very low default risk increases the attractiveness of government-backed infrastructure bonds.
Also Read: Treasury Bonds Oversubscribed as Investors Move from Equities.
