Safaricom is concerned that if it moves further with the internal reorganization process to separate M-
Pesa from its telecom company, the Kenya Revenue Authority (KRA) may use the present tax rules to
levy taxes on it, such as the capital gains tax (CGT).
Before establishing a new group structure to see M-Pesa and the telecommunications company run as
separate entities, the telco says it will seek government tax waivers.
According to the CEO of Safaricom, Peter Ndegwa, the listed company will require government
assistance “in terms of tax reliefs and so on to be able to take that path” during the investor call held on
November 11 of last year.
“There is clearly quite a lot of work to do in terms of tax and legal structures that would need to be
overcome, in particular tax, because the current tax law almost treats internal reorganization as if there
were external disposals,” told Business Daily.
“We do need approvals if we’re going in that direction so that we don’t have to pay VAT (value added
tax) or withholding tax or whatever in order for us to be able to reorganize the way we intend to.”
While the board has yet to approve the transaction to separate the two businesses, according to Mr.
Ndegwa, it has given the management support to work in that direction.
Assets from one firm in a group are transferred to another company in the same group as part of the
restructuring. These assets can be liable for capital gains tax (CGT).
Any company transfer inside Safaricom that is done as a going concern may also result in a VAT charge
of up to 16%.
CGT tax laws give several exemptions, such as when a company restructures its group of companies
without the involvement of a third party.
Safaricom would still need to apply, and the KRA will need to decide which exemptions to grant
them—even though President William Ruto has vowed to be stringent about approving any tax waivers.
“Everybody is going to pay tax. This is not Animal Farm where some animals are more equal than others.
There will be no waiver for anybody. You saw people waiving taxes for their businesses… you buy this
bank, you sell that bank and you waive taxes. It is not going to happen under my administration,”
President Ruto said.
Safaricom discloses tax concern in plan to split off M-Pesa
