The bounce back of Gold

By Baikúlia-òBamung’o

TRENDING in recently, is the news of foul murder there in Kilimani, Kenya’s leading dungeon of sin, treachery and illicit carnal carnivores. Grapevine that circulated after the murder insinuated the crime was a culmination of trade in gold gone haywire. Gold, again, is a hot cake in asset investing.

Historically, the biggest drawback of investing in gold is that it doesn’t pay dividends, like a stock, or interest, like a bond. Thus, there has always been an opportunity cost of holding gold, over those other assets. How things change! The price of gold has now reached an all-time high of $2,000 per ounce.

Once upon a time, gold was the King. Thereafter, it retreated to a sideshow, when the world abandoned the gold standard in 1971. So, why the spike now?

Donald Trump, the outgoing President of the United States, has initiated reclusive protectionist agenda that has diminished America’s standing on the world stage. This is coupled with the perception that the U.S. dollar is no longer a dependable safe haven.

Even before Covid-19, a fake pandemic, the price of gold had been rising as more countries backed away from the U.S. dollar as the world’s de facto reserve currency.

The end of the dollar’s preeminence has lacked a obvious challenger. The world’s second most important currency, the euro, lags far behind the dollar in measures of international use.

Meanwhile, the Chinese renminbi, heralded as a potential challenger not long ago, is only fifth, seventh, or eighth in the rankings, depending on the criterion used. And cryptos, such as Bitcoins, have been hijacked by scammers, drug Lords and Kilimani residents.

The end of dollar dominance and fake claim to throne of possible alternatives, has left no alternative other than ancient patriarchy being recalled back to the throne. The era of gold, restarts.

The allure of the Auction Theory

Auction markets illustration

Paul Milgrom and Robert Wilson are the laureates for the Nobel prize for economic sciences this year. Their works on inventing new dimensions in regime of the auction theory.

Historically, a common auction method has been that of the sale by the fall of the hammer. In this method, people have always sold things to the highest bidder, or bought them from whoever makes the cheapest offer.

But this method has increasingly become rudimentary. New dimensions have arisen, and auction for goods and services for certain commodities, such as radio frequencies, has been difficult, because they are not able to be ingrained in the traditional way of auctions.

What is the psychology of the auction markets? Bidders behave strategically, based on the available information. They take into consideration both what they know themselves and what they believe other bidders to know.

In this mode, it becomes difficult to ascertain the value for auctions of objects with a common value, or where a value is uncertain beforehand but, in the end, is the same for everyone. Examples of such, include the future value of radio frequencies or the volume of minerals in a particular area.

In answering this dillema, Wilson, one laureate, showed why rational bidders tend to place bids below their own best estimate of the common value: they are worried about the winner’s curse – that is, about paying too much and losing out.

Over time, societies have allocated ever more complex objects among users, such as landing slots and radio frequencies. Therefore, expounding on the auction theory, is of great benefit to society.

Preparing for Kenya’s Minimum Tax

By Thura Nira

On January 1, 2021, Kenya’s tax landscapes significantly changes. The minimum tax, introduced through the Finance Act 2020, will come into force. This tax will be charged at the rate of one per cent of the gross business turnover, a huge departure from the existing tax practice.

Declare me a zero!

Kenya tax administration is based on a self-assessment tax. A tax payer declares their income from their business activities, and consequently computes and submits payable tax.

This model is anchored on trust with tax authority moving on presumption that the declarations of income by taxpayers are a reflection of the income generated. The tax authority only intervenes where there are doubts or suspicions as to the income revealed, where they may issue additional assessments.

Factory for losses!

In a capitalistic environment where making savings is cherished, self assessment on certain business incomes, such as corporation incomes, has been challenging. In view that the business incomes are based on the profit margin, a loss making entity would not pay any taxes.

But often losses are a creature of accounting, and not trading inadequacies. The tax rules creates an incentives for declaring losses to avoiding payment of taxes. This has led to certain companies forever being in loss positions. A debacle arises. Where an enterprise perpetually post losses. Yet, it remains a going concern. This is deceitful!

The introduction of the minimum tax cures this ping pongs curb and nails tax cheats operating under the guise of business losses. A minimum tax is charged on turnover, whether you will make loses or profits, is immaterial.

Mark my dates!

The rate of Kenya’s minimum tax is one per cent of the turnover. This is relatively fair. Certain countries, such as Korea, have a rate as high as 12%. The minimum tax will be payable by the 20th day after every quarter of the accounting year, that is, after the fourth, sixth, ninth and twelfth month. This is the same modality used for the installment tax for corporation.

Administratively, the minimum tax will be charged alongside installment tax. However, the minimum tax will only be paid if it is more than the installment tax, to prevent instances of double taxation. That is, only the higher of the two taxes will be payable.

The writer is a senior consultant with the Journal.