The government plans to roll out Special Economic Zones (SEZs) which will enjoy lower taxes to boost Kenya’s investment profile.
The designated trading zones will be established in the first quarter of 2016, the Industrialisation ministry has said.
They are expected to help investors cut down on key cost drivers such as transport, with the hope that surplus funds would go towards value addition.
The focus of the new policy on SEZs is that goods be produced closer to raw material sources and investors handed preferential terms on matters such as licensing.
“The ministry plans to roll out the Special Economic Zones in the first quarter of next year,” the Industrialisation ministry said last week following a business forum between Kenya and Tanzania.
President Uhuru Kenyatta in September signed the Special Economic Zones Act 2015, which spells out key measures to revamp activities in the blocs.
The special economic zones law provides incentives for industries to operate in designated zones including Naivasha, near the Ol Karia geothermal power plants.
Manufacturers in the SEZs in Naivasha will, for instance, be offered discounts on power bills because of lower transmission costs from the power plants to the industrial hubs.
The Act provides for numerous tax incentives for investors, including exemption from all existing taxes and duties payable under the Customs and Excise Act, Income Tax Act, East African Community Customs Management Act and Value Added Tax Act on all special economic zone transactions.
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Enterprises at the SEZs will enjoy several tax incentives under a tightly monitored set-up to avoid losses of government revenue. The preferential tax terms will include value added tax (VAT) exemption on all supplies of goods and services to enterprises, reduction in corporate tax to 10 per cent from 30 per cent for a period of 10 years of operation and 15 per cent for the next 10 years.
The government plans to freeze new investments within its Export Processing Zones (EPZ) before the end of this year as it takes up the SEZs model.
The EPZs have not proves their worth to the government over the years amid concerns that their operations had failed to add meaningful economic value despite numerous tax incentives.
EPZ investors are currently enjoying 10-year corporate tax holiday and 25 per cent tax thereafter, 10-year withholding tax holidays and stamp duty exemption.
They also get 100 per cent investment deduction on initial investment applied over 20 years and VAT exemption on industrial inputs.
The SEZs are currently undergoing a pilot programme in Mombasa, Lamu and Kisumu.
At the expiry of their contractual period, existing investors in the EPZs will be required to start paying taxes in line with Kenya’s taxation laws.
They will also have a choice to either relocate or re-apply afresh to be considered for investments in the SEZs under stringent conditions.