At least two-thirds of Safaricom profits remains in Kenya
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
08 December 2019
I was recently pulled into an online discussion about Safaricom PLC and
what happens to the billions of shillings it makes in profits. A number
of people felt that it is not fair for one company to make so much money
in a poor country like Kenya.
Several among them implied that the profits are “repatriated” to the
home countries of the owners of this country. Well; nothing could be
further from the truth! To start with, Safaricom PLC is not a
foreign-owned company. It is Kenyan.
35 per cent of Safaricom PLC belongs to the government of Kenya, 25 per
cent to ordinary Kenyan investors and 40 per cent to Vodafone PLC of the
United Kingdom.
Now let us look at how its profits are shared out using the latest
audited financial report. In the year that ended on 31st
March 2019, Safaricom PLC made a profit of Sh91.2 billion. From this, it
paid Sh28.7B as direct income tax to the government of Kenya. That left
Sh62.5B net profit that belongs to the owners (shareholders).
But, let’s not forget that the government owns 35 per cent of the
shares. So, out of the Sh62.5B shareholders’ profit, 35 percent belongs
to the government. That is another Sh21.9B bringing the total
government’s share of income to Sh50.6B – this is 55 per cent.
Furthermore, 25 per cent of the profit after tax (that is Sh22.8B)
belongs to Kenyan investors. Therefore, out of the Sh91.2B, at total of
Sh73.4B belongs to Kenya and Kenyans. This leaves just Sh17.8B (or 20
per cent) for the foreigners.
The way I see it, it is the foreigners who should be complaining: they
own 35 per cent of the company but claim only 20 per cent of the
profits.
But it is not right to do the calculation this way. A better way is to
look at the proportion of dividends paid since this is the actual money
that goes to investors’ pockets. In the last financial year, Safaricom
PLC paid out a total of Sh75B. This was distributed proportionately to
the shareholders depending on the number of shares owned.
With 35 per cent of shares, the government received Sh26.25B directly.
The local shareholders were paid a total of Sh18.75B for their 25 per
cent ownership. However, this was charged a 5 per cent withholding tax
which went to the government.
The withholding tax comes to a total of Sh938 million. This brings the
amount taken by government to Sh27.2B.
The foreign owners received Sh30B for their 40 per cent share. This was
also charged withholding tax but at a higher rate of 10 per cent. Thus,
they only took Sh27B and paid Sh3B to the government.
So, the government’s total cash income from the dividend payment was
Sh27.2B + Sh3B = Sh30.2B. Only Sh27B out of the Sh75B paid out was
repatriated to the home countries of the foreigners. This 36 per cent
going to some one who owns 40 per cent.
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