EDITORIAL: Extend energy tax incentive to local companies as well

Opinion and Analysis

 

By BUSINESS DAILY

Reports that the Treasury is seeking to attract more foreign investors to the energy sector by scrapping some taxes are good, but the same favours should be extended to local companies.

Even though Kenya admittedly needs foreign investors with technical expertise and financial muscle to develop the energy sector, local companies such as Centum, KenGen and TransCentury are already involved in power generation projects.

It would be unfair to make the playing field lopsided by charging foreigners lesser taxes than what local firms pay to the Treasury.

It would be unimaginable, for example, that a Kenyan power generator would get similar tax incentives in the countries whose foreign investors we are seeking to attract.

If the tax incentives are to be passed, then they should be enjoyed by all companies in the industry.

After all, policy incentives should not kill but nurture the likes of KenGen, TransCentury and Centum to be tomorrow’s multinationals.

According to a notice published by Treasury Secretary Henry Rotich, Kenya has scrapped taxes payable on profits earned by foreign firms that supply electricity to the national grid.

The move, in the government’s view, is aimed at cutting generation costs and attracting offshore investments into the sector.

The policy change effectively allows foreign firms to repatriate their profits from sale of electricity to Kenya Power without incurring taxes.

Such firms are also cushioned from payment received for other services that include equipment lease and after-sale service rendered in Kenya to boost supply of power to the national grid.

As in most policy and especially taxation matters, the devil is always in the detail.

It could as well be that the net effect of the policy change is such that it leaves local companies on a level playing field with their foreign counterparts once the incentives are taken into account.

But is that is not the case, then the directive must be modified.

As the people’s representatives, MPs should take a keen interest in such policy pronouncements.

It must also be demonstrated that the benefits of such policies have a real chance of trickling down to the intended beneficiaries, the taxpayers.

The incentives should have inbuilt targets, for example, which show how much savings a policy change is likely to make, and how much will reach the tax payers in form of reduced power bills.

It must be demonstrated that they are designed to benefit all, and not just a small clique of investors.