More companies are expected to trade their shares on the Rwanda Over The Counter (ROTC) bourse over the next few years in order to enjoy the tax incentives offered by government, the Executive Director of the Capital Market Advisory Council (CMAC) has said.
Robert Mathu told Business Times that the incentives will also attract investors and encourage public savings through the ROTC bourse.
Parliament recently approved various tax incentives on securities and companies listed on the ROTC market following CMAC’s proposal to government to reduce listing and cross listing barriers.
Income accruing to registered collective investment schemes and employees’ shares scheme has been exempted from taxes as capital gains taxes on secondary market transactions on listed securities was scraped.
A capital gain resulting from the sale or cession of commercial immovable property is taxed on a rate of 30 percent.
The new modified policy on direct taxes on income says that newly listed companies on capital market shall be taxed for a period of five years on favourable rates of 20 percent if those companies sell at least 40 percent of their shares to the public.
The companies that sell at least 40 percent of their shares to the public will be taxed at a rate of 25 percent and 28 percent for the ones that sell at least 20 percent. Taxable business profit is taxable at a rate of 30 percent.
“They (tax incentives) will encourage new listings as companies pay less corporate income taxes and also lower withholding taxes on dividends and interest. They will also encourage investors to save more through the capital market as they will be taxed less. In addition secondary market trades will be exempted from VAT,” Mathu said.
Individuals and institutions from the East African Community that invest on the ROTC market are also set to enjoy a dearer withholding tax rate of 5 percent from 15 percent, meaning that that the incentives are also inline with the fiscal benchmarks on capital markets contained in the EAC Common Market Protocol.
“The incentives treated investors in the region equally. Incentives do exist for cross listed companies in that they are not charged any cross listing fees other than the annual listing fees. Application fees for cross listing is free and this is provided under the CMAC Blue print and not as a fiscal incentive,” Mathu said.
“In addition, venture capital funds will be accorded 5 years tax free on establishing and registering in Rwanda.”
The ROTC market has not listed any local company since its inception in 2008 despite an influx of government bonds.
The bourse has attracted one corporate bond from Rwanda Commercial Bank (BCR) and one cross listing from Kenya’s KCB.
“Going public is not an easy matter. It will take some time,” Mathu said.
He said they are facing challenges including disclosure requirements, especially the auditing standard and that more so the culture and practice of going public will be triggered by the market forces as the economy goes regional and more competition is injected into the economy.
“This will push businesses to search for alternative and more competitive strategies for financing
With regard to the non fiscal policies, Mathu said that already the Central Bank has been able to provide a very stable macroeconomic environment with stable interest rates and exchange rates regime and also liberalized the capital account to allow for the free movement of capital into and out of the economy.
Rwanda is expecting its first ever Initial Public Offering (IPO) in the Financial Year 2010/11 as government plans to sell off its 30 percent equity stake in the country’s largest brewer, Bralirwa.
Government will sell 25 percent to the public and 5 percent to Heineken Group, which currently has 70 percent shares in the company.