By Jevans Nyabiage
Every year, Kenya foregoes more than Sh100 billion in tax exemptions in a bid to attract foreign investment.
This is despite indications the Government is losing revenue in export processing zones through incentives.
Studies by the International Monetary Fund ( IMF) and tax analysts suggest that tax exemptions also lead to loss of foreign direct investment.
A new study by the Tax Justice Network-Africa and Action Aid International indicates that despite being the country with the most generous tax incentives in the region, Kenya was also the biggest loser in foreign direct investment (FDIs) inflows compared to Uganda and Tanzania.
According to the study, while Kenya’s FDI inflows stood at $133 million in 2010, Uganda and Tanzania $848 million and $700 million respectively over the same period.
In the study, export processing zones (EPZ) represent the largest sector where the Government is losing revenue through tax incentives.
It s emerging that many EPZ firms are closing shop after their 10-year tax holiday and re-registering under new names or relocating to other countries to avoid taxation.
EPZs employ about 30,000 people, down from 38,000 in 2005, which the study highlighted as an indication that the businesses were relocating.
Some tax benefits available to investors include zero-rated corporation tax holiday for a year and 25 per cent tax thereafter, 10-year withholding tax holiday, stamp duty exemption and 100 per cent investment deduction on initial investment applied over 20 years.
Dereje Alemayehu, the chair of the Tax Justice Network, said EPZ firms, notably those in textiles, accounted for 70 per cent of the exports under the US African Growth and Opportunity Act (AGOA).