Counties have received a shot in the arm in their effort to attract investment after the Treasury retained generous tax incentives to firms setting up shop in the countryside.
From January 1, 2018, firms investing in special economic zones (SEZs) located outside Nairobi and Mombasa will enjoy a tax deduction of 150 per cent of the money invested in new buildings and machinery, states the Finance Act 2017 published last week.
Under the old Export Processing Zone Act, firms had to spend at least Sh200 million outside Nairobi, Mombasa and Kisumu to qualify for the 150 per cent deductions.
“Subject to this schedule, where capital expenditure is incurred on the construction of a building or on the purchase and installation of machinery by or for a special economic zone enterprise located outside Nairobi and Mombasa counties, for use by the enterprise in carrying out the business activities for which it was licensed, the enterprise shall be entitled to an investment deduction equal to 150 per cent of the capital expenditure against the gains or profits of that enterprise in the year in which the building or machinery is first used,” reads new amendments to the Second Schedule to the Income Tax Act contained in the Finance Bill, 2017.
For SEZ investors who choose Nairobi and Mombasa for their bases, the incentive will remain a 100 per cent deduction on actual capital investment.
The Treasury had earlier proposed amendment to the Income Tax Act to allow 100 per cent deduction on investment put in building and machinery irrespective of where they set up shop.
The Bill, signed into law by President Uhuru Kenyatta on June 21, gives special treatment to firms that choose locations outside Kenya’s two top cities.
The firms must however recover their costs within the first year of investment, the new law states.
Other incentives include exemption on VAT, reduced corporate tax rates for a defined period, access to quality infrastructure and one-stop shops for licenses
The Act exempts dividend payable to non-residents by SEZ enterprises, developers and operators from withholding tax while management fees, professional fees, training fees and royalties payable to a non-resident person will be subjected to withholding tax at the rate of five per cent, down from 20 per cent.
The measures are meant to reduce the cost of doing business, inspire foreign direct investment, position Kenya as a premier business hub and increase employment opportunities, the Treasury secretary Henry Rotich said in his budget speech.