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Kenya seeks to attract and retain investors with tax benefits

Monday April 03 2017

Kenya is keen on building on the gains made in improving the ease of doing business in the country to attract foreign direct investment.

In the 2017/18 budget, it offers tax measures and legal and regulatory reforms to attract and retain investors.

Cabinet Secretary for the National Treasury Henry Rotich unveiled tax benefits for investors in the Special Economic Zones (SEZ).

“Kenya will provide a host of incentives for industries to operate including exemption on dividends payable to non-residents by enterprises operating in SEZ, a reduction of withholding tax on interest payable to non-residents by SEZ enterprises from 15 per cent to five per cent; allowing a capital deduction of 100 per cent of the cost of buildings and machinery owned by the SEZ enterprise,” said Mr Rotich.

Patrick Macharia, senior manager at PricewaterhouseCoopers Kenya, said the government has proposed an amendment to the Miscellaneous Fees and Levies Act to exempt duty and import declaration fees for exported and imported goods by enterprises licensed under the SEZ Act.

“This is expected to reduce the cost of doing business and spur FDIs, therefore expanding the local economy and promoting job creation,” he said.

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Titus Mukora, a tax partner at PwC Kenya said the benefits demonstrate the government’s resolve to promote SEZs as part of its industrialisation agenda. “However, there will be a need to consider the impact of other taxes such as compensating tax liabilities that may arise from the provision of such tax incentives,” he said.

Motor vehicle assemblers will now enjoy a reduced corporation tax rate of 15 per cent down from 30 per cent for the first five years of operation. This will be a welcome move, especially because over the past two years international motor companies like Volkswagen, Peugeot, Invesco, Ashok Leyland have expressed interest or started vehicle assembly plants in the country. Toyota has announced plans to expand its bus assembly plant.

Mr Rotich’s announcement of the development of a Comprehensive Automotive Industry Development Policy, an actionable 10-year Automotive Industry Development Plan plus the tax incentives are seen as measures to attract more investors into this sector.

However, tax analysts say there needs for clarity on who will enjoy these benefits as Mr Rotich spoke of “new motor vehicle assemblers.”
Mr Rotich also allocated $2.5 million to support initiatives to ease the cost of doing business. In the past three years, the country has reduced the time and cost of opening and operating a business. This has been achieved as a result of measures initiated by the dedicated Business Environment Delivery Unit at the Ministry of Industrialisation and Enterprise Development.

Over the past three years, Kenya’s ranking in the World Bank’s Doing Business Indicators has improved by 44 places from 136 to 92.

“As a result, FDI increased from $514 billion in 2013, to at least $2.3 billion last year. In an effort to reduce obstacles that hinder faster growth of investment, we have established a One Stop Centre for investors, which will be operational by April,” said Mr Rotich.

He added that they have also established e-regulation and soon e-Opportunities to enable investors interested in Kenya to search for investment opportunities online.

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