UAP Holdings says capital gains tax hit profit in 2014

MONEY MARKETS

UAP Holdings chief financial officer Jackson Theuri. PHOTO | FILE |   NATION MEDIA GROUP

By JOHN GACHIRI, jgachiri@ke.nationmedia.com
IN SUMMARY

• The company’s chief finance officer Jackson Theuri said accounting standards require that companies recognise capital gains tax as per the date the tax laws were created and not when they become enforceable.
• The newly re-introduced tax has also affected trading on the Nairobi Securities Exchange (NSE).

UAP Holdings said Monday that the introduction of the capital gains tax (CGT) caused the drop in its overall profitability in 2014.

“Our net profit reduced by eight per cent as result of a 57 per cent increase in our tax expense as a result of a one-off deferred tax charge of cumulative gains on investment properties recognised in 2014 following the introduction of capital gains tax in Kenya,” said UAP in a statement.The insurance firm’s net profit for 2014 fell by eight per cent to stand at Sh1.67 billion from Sh1.81 billion recorded a year earlier because of taxes that are payable in future.

The company’s chief finance officer Jackson Theuri said accounting standards require that companies recognise capital gains tax as per the date the tax laws were created and not when they become enforceable.

“We recognised a deferred tax charge on cumulative fair value gains, including on unrealised gains that we had recognised for periods prior to 2014. This deferred tax charge is part of the income tax expense recognised in our income statement for 2014 and amounts to Sh165 million. Note that this tax is not payable at this point but will become payable in future years when we dispose of the underlying assets,” Mr Theuri told the Business Daily.

The CGT became effective on January 1 after it was reintroduced in late 2014 after 30 years as part of the government’s pledge to the International Monetary Fund (IMF) but the laws were passed on December 31, 2014.

UAP’s total income increased to Sh16.69 billion from Sh12.74 billion over the same period, a 32.5 per cent increase, which was helped by growth from its businesses in Uganda and South Sudan.

The newly re-introduced tax has also affected trading on the Nairobi Securities Exchange (NSE).

READ: Capital gains tax to spoil party for investors in stocks, property

“Since the announcement in late 2014, market trading in the equities market has been subdued as indicated by a 35 per cent decline in volumes traded in January 2015 relative to levels recorded in the same period of 2014, whilst a market which has historically been dominated by foreign investors has seen significant contraction in their participation averaging 43.5 per cent in January from levels above 50 per cent during the same period in 2014,” said an outlook report by Genghis Capital.