Do away with tax incentives for foreign firms, urges KRA

The taxman wants the government to do away with tax incentives offered as an attraction to foreign investors and instead focus on improving the local business environment through efficient service delivery.

Kenya Revenue Authority Commissioner General John Njiraini said studies have shown that the effect of such concessions and incentives on investor confidence are minimal.

He said on the contrary, foreign investors are keener on the state of infrastructure and the time taken to register and get all statutory approvals to establish and run a company among other factors that contribute to ease of doing business.

“Studies have shown that the main reasons foreign firms invest in Kenya are access to the local and regional market, political stability, security, infrastructure, market size, quality of labour, power costs and regulatory certainty, and favourable bilateral trade agreements. Tax concessions offered by incentives is very minimal,” Mr Njiraini said.

He spoke in Kwale County while addressing Kenyan ambassadors and high commissioners.

KRA hopes that withdrawal of tax incentives would result in higher revenue collections.

BIGGEST LOSER

A study released by the Tax Justice Network-Africa and Action Aid International last year indicates that despite Kenya being the country with the most generous tax incentives in the region, it was also the biggest loser in foreign direct investment (FDIs) inflows compared to Uganda and Tanzania.

It said Kenya’s FDI inflows stood at $133 million in 2010, Uganda and Tanzania $848 million and $700 million respectively over the same period.

For instance, investors in Export Processing Zones enjoy a raft of tax benefits including zero-rated corporation tax holiday for a year and 25 per cent tax thereafter, 10-year withholding tax holiday, stamp duty exemption and 100 per cent investment deduction on initial investment applied over 20 years.

The chief taxman said the authority is currently executing reforms to address tax regulation hurdles in an attempt to ease investment in the country. Focus will be given to tax administration challenges which have perennially affected cash inflows.

“The ease of paying taxes is critical. To make tax administration friendly, we are consolidating payment of deductions. By June we shall have single process of collecting payroll deductions,” Mr Njiraini said.

He noted that it is difficult for investors to deal with multiple organisations for different levies instead of just one.

Once the reforms are complete, contributions to the National Social Security Fund, National Hospital Insurance Fund and Pay as You Earn will be collected by KRA.

Additional reporting by Laban Robert