SEZ companies get Sh1.9bn tax incentives in nine years
Kenya Revenue Authority officials, David Ontweka (left) and Esther Wahome before the National Assembly Finance and Planning Committee led by Kimani Kuria at Bunge Towers Nairobi on May 07, 2024.
Photo credit: Photo | Dennis Onsongo | Nation Media Group
Firms operating in Kenya’s special economic zones (SEZ) were exempted from paying Sh1.98 billion in taxes and other levies in the nine years to 2023, Parliament was told.
The incentives include protection from corporation tax, withholding taxes, and value-added tax (VAT) and are offered to developers and enterprises in SEZs to encourage local investment.
The Kenya Revenue Authority (KRA) told the parliamentary Committee on Finance and National Planning that for the period 2015 to 2023, a total of Sh4,085,454,461 was computed for the 37 special economic zones.
“From the computed tax, a total of 1,987,249,558 was exempted from tax. Thus Sh2,090,251,963 was paid in taxes by the SEZs entities that have been issued with customs codes and are operating from the customs area,” David Ontweka, deputy KRA Commissioner for Policy and Customs, said.
The KRA management appeared before the committee chaired by Molo MP Kuria Kimani to respond to questions filed by Mbeere North MP Geofrey Ruku on tax foregone in the SEZs.
Mr Ruku had sought a detailed schedule of tax exemptions for each category of exempted taxes between 2015 and 2023 and for each special economic zone enterprise.
Mr Ontweka told the MPs that the KRA commenced the facilitation of the SEZs in 2022 and issued guidelines for appointment or operating a SEZ, which were published on June 9, 2022, through gazette notice number 6930.
He said the KRA has issued import/export codes to 31 SEZ to facilitate the operation of the entities.
“The issuance of the codes effectively incorporates the SEZs operators in the custom systems for purposes of various customs transactions,” said Mr Ontweka.
“The Special Economic Zones Authority (SEZA) has facilitated the declaration and gazettement of 37 SEZ in the country, out of which 30 are private and seven are public.”
He said the public SEZs include Naivasha SEZ, Konza City Sez, Dongo Kundu SEZ, Sagana Agro-Industrial City (SAIC) SEZ, East Africa Free Zone SEZ, and Africa Economic Zone.
Investment Promotion PS Abubakar Hassan said 56 enterprises had set up businesses in the 12 SEZs that are currently operational.
“So far, $960 million has been generated in terms of investment and created about 5,000 jobs,” said Mr Hassan.
A report Mr Ontweka tabled shows International Committee of the Red Cross, Tatu City, Two Rivers Mall, Eco Ross Limited, Unity West SEZ Limited, Impact North SEZ, Twiga Tatu Limited, Ziara Special Economic Zone Limited, Geokim Supplies Company, and Mount Kipipiri Golf and Resort (SEZ) were biggest beneficiaries of the tax exemptions.
The tax exemptions ranged from as low as Sh2.35 million to as high as Sh604 million annually.
Esther Wahome, Deputy Commission in charge of Policy and Domestic Taxes, told the committee that 12 SEZs were assessed, and tax computed amounted to Sh154.74 million. She said from the computed taxes, a total of Sh37.77 million was exempted and Sh116.97 million was paid by the SEZ entities.
“The quantum of exemptions and waivers have been extended to SEZ developers, operators, and enterprises in respect of corporation tax, withholding taxes, value-added tax (VAT), including VAT on imports and import duties each year,” said Ms Wahome.
“The customs taxes foregone for SEZ entities from the year 2015 to 2023 is estimated at Sh1,987,249,558. This includes the Import Declaration Form.”
She said the estimated VAT foregone for the period 2015 to 2024 is Sh545.78 million for the SEZ entities while income tax (corporation tax) foregone in the period under review for the SEZ entities is estimated at Sh167 million. On pay-as-you-earn taxes paid by each of the 12 SEZs, Sh1,049,088,204 was collected between 2015 and 2023.
“SBM Special Economic Zone and Mombasa Industrial Park Special Economic Zone do not have a PIN,” said Ms Wahome.
“Northlands, Dongo Kundu and Naivasha Special Economic Zones do not have a PAYE obligation. A PAYE obligation is not mandatory.”
Mr Kimani and Mr Ruku demanded to know the safeguards in place to ensure that the KRA collects taxes from the SEZ.
Mr Ruku claimed that there is a grand scheme of tax evasion by SEZs which lies squarely on some offshore companies that each SEZ has.
“Some of these companies made profits but did not pay dividends. Some SEZs have made land transactions and sales but have not paid taxes,” Mr Kimani said.
The KRA said it is seeking law change to tighten controls and management of the SEZs to ensure all taxes are paid.
