Safaricom PLC has made plans for internal reorganization to establish a new group firm to independently manage its M-Pesa and telephony activities. Before moving through with the idea, the corporation announced that it would seek a tax exemption from the Kenya Revenue Authority (KRA).
According to Safaricom CEO Peter Ndegwa, the government should encourage the restructuring via tax breaks since, under the existing tax code, internal restructuring is seen as an external sale that requires the corporation to pay taxes like VAT or withholding tax.
In 2021, politicians pushed for a separation of Safaricom’s M-Pesa business, saying it would provide a clear regulatory route. Additionally, the transaction would be subject to capital gains tax (CGT), and Safaricom might be obliged to pay a 16% VAT on any transferred business services. Safaricom must ask the KRA for tax exemptions to get tax exemptions per CGT legislation. If the restructuring is authorized, Safaricom PLC will manage the new firms, and the group will profit.
KRA’s Targets for Tax Revenue
However, the Kenyan government’s efforts to boost tax rates and collect income might make Safaricom’s request for tax exemptions challenging to grant. To lessen dependency on debt, President William Ruto has given the KRA a goal of collecting KSh 3 trillion in taxes by the end of 2023. The KRA has implemented additional taxes as part of this initiative, including increasing the CGT from 5% to 15%. The M-Pesa split plans of Safaricom may be affected by this.