AU asks Kenya to extend tax breaks to local companies

Every year Kenya doles out billions of shillings. FILE PHOTO | NMG 

By BRIAN NGUGI
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Summary

• Head of industry division says preferential treatment given to foreigners hurts local enterprises.

Kenya has been tipped to fairly share its multibillion-shilling tax incentives among local and foreign
companies to fast track industrialisation and boost job creation.

Ms Ron Osman Omar, acting head of industry division at the African Union said Friday a skewed tax regime that bears down inefficiently on local firms “is a significant constraint on enterprise and investment.”

Every year Kenya doles out billions of shillings, mostly to foreign-owned export-oriented firms in the form of tax credits, deferrals and exemptions.

Data from Kenya Revenue Authority (KRA) shows that tax handouts, which stood at Sh220.8 billion 10 years ago, rose steadily to hit Sh455.7 billion in 2016 and Sh478 billion in 2017.

“Many multinationals continue to enjoy tax-free status in several other African countries, and I'm not against this, but the same regulations could also be granted to local industries,” Ms Omar told the Business Daily.

“If internationals are allowed to come to the country and take profit it would be necessary to give the same benefits to local organisations.”

She spoke on the sidelines of a two-day industrial policy literacy training for African business journalists organised by the AU and the German development agency GIZ held at the African Union headquarters in Addis Ababa, Ethiopia.

Kenya’s tax rates are ranked among the highest in Africa. The KRA has stepped up crackdown on local firms over allegations of tax evasion, which has led to a wave of company closures.

About 2.2 million small enterprises have closed shop over the last five years, underlining the tough challenges that the local business climate poses for investors.

Kenya has in the past offered tax concessions or preferential treatment to some multinationals to incentivise them to set base locally and boost job creation.

This includes through the setting up of export processing zones and special economic zones which are designated parts that are aimed at promoting and facilitating export-oriented investments and to develop an enabling environment for such investments.