Firms investing at least Sh250 million outside Nairobi and Mombasa yearly will, from today, pay less tax in government efforts to spur economic activities outside the two cities.
This follows an increase of the investment deduction rate to 150 per cent when calculating corporate income taxes, allowing firms to recover the worth of their spending on buildings and machinery from taxes.
Until yesterday, the firms were allowed to deduct 100 per cent of expenses from profit, which ultimately lowers taxation.
The new rate contained in the Finance Act 2022, which President Kenyatta signed last week, also applies to companies that had cumulatively spent at least Sh2 billion on buildings and machinery outside Kenya’s two largest cities in three years before the review of investment deductions.
The setting of a 150 per cent investment deduction marks two successive improvements since last year when the State raised the rate to 100 per cent.
Encourage investment
A review—through the Tax Laws (Amendment) Act 2020 —had resulted in a sharp fall in capital allowances from a high of 150 per cent of investment value to 50 per cent in the first year and 25 per cent in subsequent years.
Before the April 2020 review, investors outside Nairobi, Mombasa, and Kisumu were eligible to deduct 150 per cent of expenditure on buildings and machinery if the investment value was at least Sh200 million.
“We understand that the government’s intention is to encourage investment outside the main cities of Nairobi and Mombasa, which are considered relatively developed” an audit consultancy firm, Deloitte said in a commentary on the Finance Bill that has been signed into law.
The reinstated higher tax cuts go against earlier aspirations by the State to cut back on such rebates.
In recent years, The Treasury and Kenya Revenue Authority have been looking to claw back some of the preferential rates of tax, investment deductions, tax reliefs, zero-rating for value-added tax purposes, remissions of taxes, and exemptions.
They argue that the tax benefits have failed to boost the economy through increased jobs and affordable prices for consumers and instead added to the profits of companies and the wealthy.
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