Tax breaks ‘hurting economic growth’

Industrialisation Cabinet Secretary Adan Mohamed. Tax breaks are creating “unfair competition” for local businesses, he has said. PHOTO|DIANA NGILA.   NATION

In Summary
Losses suffered by the government and local industries due to the tax breaks are set to rise given Kenya’s commitment to invest heavily in infrastructure.
The recently implemented VAT Act addresses a large segment of these tax breaks.

 

 By MUTHOKI MUMO
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Tax breaks for companies carrying out government projects should be removed, a Cabinet Secretary has said.

Industrialisation minister Adan Mohamed said the tax breaks are not helping the economy.

Goods imported for government projects are not subjected to duty.

In a September 5 letter to his Treasury counterpart, Mr Henry Rotich, Mr Mohamed said the tax breaks were creating “unfair competition” for local businesses.

“Not only are most of these projects performed by non-resident businesses, but they also import most of their products even those that locally-based businesses can supply,” wrote Mr Mohammed.

Further, he said the tax breaks lead to heavy tax revenue losses for the economy.

He said losses suffered by the government and local industries due to the tax breaks are set to rise given Kenya’s commitment to invest heavily in infrastructure.

Kenya has set aside Sh288.5 billion for infrastructure in the 2013-2014 budget.

This is earmarked for road construction, geothermal development, building a standard gauge railway and the Lamu Port South Sudan Ethiopia (Lapsset) transport corridor.

The recently implemented VAT Act addresses a large segment of these tax breaks.

Field still uneven

However, the Ministry of Industrialisation says the playing field is still uneven especially in terms of import duty exemptions that are sometimes granted to companies carrying out government projects.

These calls come within the larger context of growing evidence that tax breaks to investors hurt the economy.

A report published by ActionAid say tax incentives cost the Kenyan economy at least Sh100 billion annually