Features

Safaric*m profit dip a harsh wake up call

Tuesday, November 10th, 2020 00:00 | By
Safaricom CEO Peter Ndegwa.

While it was expected that most firms will post low profits due to Covid-19 effects on the economy, Safaricom’s six per cent decline in profit announced yesterday must be a harsh wake-up call.

The telco’s Sh33 billion half-year profit after tax for 2020/2021 against Sh35.2 last year, lays bare Kenya’s corporate spine on the back of the pandemic. 

For starters, it is the first time for the giant telco to report a dip in profits since 2012, this time due to fee waivers for M-Pesa transactions, so as to encourage mobile money usage as a measure to reduce the risk of spreading the virus through cash transactions.

While it is true that Safaricom paid an increased Sh750 million in taxes despite the dip in profit, the real impact of the pandemic is taking shape.

The result goes a long way to show the likely trajectory of the performance of local companies going forward, amid concerns that it would be worse for some.

More importantly, for the economy, it is the knock-on effects of these earnings on the Exchequer and particularly the tax collector which must worry Treasury.

Having reduced the income tax and chopped Value Added Tax to enable Kenyans to cushion themselves during the eight months of the pandemic, truth is the taxman is already running on empty.

The taxman and the exchequer must move with speed to manage expectations, otherwise the surging demand for revenue will see Kenya’s public debt portfolio surge.

If more companies post poor results – which is bound to be the case – then trouble abounds at the National Treasury, having already made calls for additional funds in the revised 2020/21 budget.

This is despite the lowering of expected collection by the Kenya Revenue Authority from Sh1.63 trillion set in June to Sh1.6 trillion. 

As pressure mounts, there is little headroom left, and it is expected that the taxman will be bullish in collections to meet its targets.

However, given the underlying conditions, this might be the time to test the tax collector’s genius.

While at it the taxman must ensure he balances collection,  so that he does not run corporations out of town in search of elusive taxes.

Hopefully, measures such as the informer reward scheme and vigilance against tax evasion would enhance tax collections.

Also, government must ensure that cases pending at the Tax Appeals Tribunal are sorted out as fast as possible to ensure the funds are freed to regenerate in the economy.

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