Tatu City eyes Sh20bn tax refund on infrastructure
Parliamentary Committee on Public Works, Roads and Housing chairman David Were with Renaissance Group deputy CEO Hans Jocham Horn during a visit to Tatu City project site on Tuesday. DIANA NGILA
Developers of the Tatu City commercial and residential estate are targeting tax refunds of up to Sh20 billion that they intend to spend on building roads, sewerage systems, power lines and supplying water to tenants.
The developers are basing their refund estimates on a new law proposed by Finance minister Njeru Githae, which will authorise the Kenya Revenue Authority (KRA) to allow builders of social infrastructure to claim tax deductions equivalent to amounts spent in four years.
The Sh350 billion ($3 billion) Tatu City project involves development of backbone infrastructural utilities after which developers will be invited to construct mixed use residential and commercial units that are expected to house about 70,000 residents.
(Read: Tatu City’s investors ‘have Nema approval’) “Approximately 30 per cent of the total (Sh64.5 billion) cost in the first phase is on public infrastructure,” said the firm in a statement.
“Our objective is to develop the infrastructure system like roads, water and sewerage system and we think this qualifies for tax rebates under the plan,” added the firm.
Development of the mega project was initially beset by shareholder wrangles that saw multiple lawsuits filed in court, but injunctions against construction of the estate have since been lifted, according to Ashley Holman, who is in charge of Tatu City’s urban development.
(Read: Judge orders that Tatu City cases be consolidated) The first phase of the planned community development will cost about Sh64.5 billion and features the development of a highway to the estate, 26 kilometres of underground electrical cabling, 18 kilometres of piped water, four boreholes, a water dam and recycling plant, a sewerage system and treatment plant, fibre optic cable and a piped cooking gas network.
Spur investments
Hans Jochum Horn, the deputy chief executive of Renaissance Group which is majority shareholder of Tatu City, said the tax rebate will make the project more feasible and increase affordability of the units.
“Where a person incurs capital expenditure on the construction of a commercial building and the person has provided roads, power, sewers, there shall be deducted in computing the profits of that person for any year of income a deduction equal to 25 per cent,” states a proposal in the Finance Bill 2012 signed by Mr Githae.
On Tuesday, members of the Parliamentary committee on Transport, Public Works and Housing made a fact finding site visit to the project to assess necessary policy interventions required to facilitate what is billed as the largest housing project in Kenya.
“We welcome the (finance) minister’s proposal. We will also help enact laws and policies to spur such investments that will help Kenya realise its goal of providing 200,000 housing units annually as per Vision 2030,” said David Were, chairperson of the Committee.
Peter Muraya, the chief executive officer of Suraya Property Group, also welcomed Mr Githae’s tax break proposal. Mr Muraya said Suraya will also be looking to recoup about Sh300 million spent on the on-going Fourways Junction development that aims to construct 1,000 residential houses, office blocks, a shopping mall, a three-star hotel and a business process outsourcing park.
“We are spending more than Sh100 million in putting up a sewerage system complete with a water recycling plant. We are also in talks with the Kenya Rural Roads Authority to widen Kiambu Road from the northern by-pass junction to the project site,” said Mr Muraya.
Tatu City is working on model that will see it function as a private municipality—it will provide infrastructure and services such as electricity and water supply, drainage and sewerage, solid waste management, transport system, recreation facilities— and charge residents for this service. The proposal by Finance minister is not clear on what happens when the developer of public utilities charges rates on the tenants.
“There is a lacuna in the proposal. The Treasury should develop guidelines on qualifications to access the facility,” said Mr John Thindi, a tax director at PKF in an interview with the Business Daily.
“I don’t think developments in urban areas are eligible as they fall within serviced zones of local authorities,” he added saying that the proposal will complement the current incentive of five per cent tax reduction given to low cost housing developments.
