Capital Markets Authority seeks reversal of lost incentives to boost market activity

The Capital Markets Authority (CMA) says it is seeking the reversal of lost incentives to boost market activity in its push for a post COVID-19 recovery.

The capital markets’ regulator believes the incentives discouraged earlier in the year through the Tax Laws (Amendment) Act and the 2020 Finance Act are still crucial in boosting market participation in spite of contrary views.

“There have been arguments on whether tax incentives work or not. One of the reason why we saw the listing of the Fahari I-REIT- the first real estate investment scheme was because of the existence of incentives,” said Acting CMA CEO Wycliffe Shamiah on Wednesday.

The Tax Laws (Amendment) Act and the 2020 Finance Act represented a double-barrelled blow to the capital markets as it pruned incentives to boost the enrollment of new participants.
The first Act for instance raised the rate of withholding tax on dividends paid to non-residents from 10 to 15 per cent, impacting on yields earned by foreign investors who make up a significant part of equities trading.

The 2020 Finance Act meanwhile blocked the inclusion of expenses incurred in the issuing of shares and securities including legal and incidental costs.

The passage of the expenses as non-deductible elements in the tallying of tax was seen as a discouragement to listings at a time when the NSE is witnessing minimal activity.

“We believe the capital markets will be a driver of economic recovery and will leverage this in our discussions. Our approach will be using our various arms to explain the impact of the removal of incentives,” added CMA Director of Regulatory Policy and Strategy Luke Ombara.

Like any other industry, the capital markets has taken a significant hit from the ongoing pandemic prompting the regulator to pursue new avenues to keep the market’s engine revving.

Other proposals by the CMA include the review of Public Offers, Listings and Disclosure Regulations, a process which lies in the consultation stage with plans to publish the improved rules in June 2021.

The review is geared at rolling out rules that are responsive to the widened scope of participants which now include small and medium enterprises (SMEs) and Counties.

Further, the CMA is mulling a piece of the SME Credit Guarantee Scheme by the National Treasury to guarantee capital raising initiatives by SMEs.

Alternatively, the regulator says it would consider creating its own guarantee scheme funded through member contributions to a sinking fund which would insure risks taken on by investors.

The fund is seen as a cure to recent wounds which have seen investors lose billions to corporate bond defaulters among them Imperial and Chase banks.

Further factors weighing down the domestic capital markets include liquidity and market concentration concerns.