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Why Kenya is set to end tax holidays for EPZs

By Dominic Omondi | Published Fri, May 18th 2018 at 00:00, Updated May 17th 2018 at 21:27 GMT +3
Clothes on display at the Export Processing Zone mega sale at Thika Road Mall Nairobi last year. The sector is key to the economy. [Pius Cheruiyot, Standard]

Firms operating in the export processing zones will from July start paying tax after the latest income tax Bill scrapped tax holidays.

The changes contained in the Income Tax Bill, 2018, will apply to the newly created special economic zones (SEZs), with firms paying a graduated corporate income tax (CIT) of 10 per cent in the first 10 years.

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The rate will rise to 15 per cent in the next 20 years. Thereafter, taxes on profits made by corporations will revert to the normal rate of 30 per cent.

“The Bill removes the tax holiday for export processing zones (EPZ) and replaces this with a corporate tax rate of 10 per cent for the first 10 years and 15 per cent for the next 10 years and thereafter 30 per cent,” said Fred Omondi, tax partner at Deloitte East Africa.

“This will also be the same for special economic zone enterprises.”

Existing firms

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It was not immediately clear whether the changes would apply to existing firms. Attempts to get an explanation from Export Processing Zones Authority Chief Executive Fanuel Kidenda failed.

There have been calls to abolish the tax holidays enjoyed by the firms, with critics arguing that they had outlived their usefulness. Institute of Economic Affairs Chief Executive Kwame Owino said studies showed that exemptions given to attract investments such as in SEZs did not affect investors anymore.

Philip Muema, a tax expert, argued that since some exemptions had been abused in the past, the Government would be creating a level ground by requiring everyone to pay tax.

Mr Omondi said the introduction of the law was aimed at ensuring uniform tax treatment of SEZ and EPZ enterprises. “It also eliminates the exemption from tax in line with the trend of reducing tax exemptions to increase revenue.”

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According to Kenya National Bureau of Statistics data, the number of local employees engaged by EPZ firms increased to 54,622 last year from 52,947 in 2016. Loans advanced to the sector rose to Sh311.8 billion last year from Sh275.8 billion in 2016.