Why the government will push its companies to pay dividends

The government, which offered tax incentives to companies to cope with the coronavirus pandemic, may have fueled a dividend cycle at a cost to taxpayers.

The Treasury is facing a problem of tax shortfalls after the Kenya Revenue Authority (KRA) missed a half-year tax collection target by Sh109.9 billion as Covid-19 accelerated the disruption of economic activities.

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These tax shortfalls were driven primarily by foregoing corporate tax that shaved off billions, reducing consumption and income tax and the general rise in unemployment that whittled pay-as-you-earn.

Some big companies whose revenues reduced last year have made profits as a result of this tax gift and are passing them to their shareholders.

BAT Kenya has announced a 41 per cent growth in profit for the year ended December 31, 2020 to Sh5.5 billion as taxes were reduced by Sh2.2 billion.

The cigarette maker passed this benefit to its shareholder paying a cumulative dividend of Sh45 per share up from Sh33.5 per share in 2019.

Electricity generation firm, Kengen, doubled its net profit to Sh18.3 billion from Sh7.8 billion in 2019 on lower corporate taxes introduced to curb the effects of the coronavirus pandemic.

Kengen CEO Rebecca Miano said the corona taxes decreased Kengen’s deferred tax liability by Sh8.1 billion even as the company received a Sh4.5 billion tax credit.

For the year ending June 2020, Kengen has proposed to reward its shareholders by increasing the dividend per share to Sh0.3 up from 0.25 in 2019.

The only solace is the government may still get paid as a shareholder for some of the companies getting about Sh6.3 billion divided for its 35 per cent stake in Safaricom and about Sh1.3 billion for its 70 per cent investment at Kengen.

KCB which paid Sh11.1 billion total dividends to shareholders for the 2019 financial year wired Sh2.12 billion to the Treasury for its 19.76 per cent stake.