Kenya has scrapped taxes on profits earned by foreign firms supply electricity to the national grid in a move aimed at cutting generation cost and attracting offshore investments.
The directive published by Treasury Secretary Henry Rotich effectively allows foreign firms to repatriate their proceeds from sale to Kenya Power without incurring taxes.
Such firms are also cushioned from payment received for other services that include equipment lease and after-sale service rendered in Kenya to boost supply of power to the national grid.
“[I]n order to attract more investments in the energy sector for the purpose of lowering the cost of energy, as may be provided for under any Power Purchase Agreement (PPA),” Mr Rotich says in the legal notice dated August 17.
“The payment made to a non-resident for services rendered under a PPA shall be exempt from tax.”
Kenya has outlined a master plan to generate additional 5,000 megawatts of electricity mainly from wind, solar, geothermal and hydro by 2017 to stabilise supply and lower the utility’s cost.
The increased generation is expected to pull down the cost of power from around Sh15 per kilowatt-hour now to Sh10 by end of 2017.
The tax offer by Mr Rotich comes as a major concession after the Treasury exempted goods imported to set up a power plant.
“Power sector investors have complained that Railway Development Levy imposed on input imports, VAT regime and duty charged on items meant for their CSR projects are unfair,” said Kenya Power CEO Ben Chumo on Wednesday.
“The exemption is a positive outcome of several meetings with the Energy Ministry and the Treasury to improve investment climate for power project investors.”
In July, President Barack Obama flew into Kenya for the Global Entrepreneurship Summit accompanied by top executives of US firms seeking PPAs with Kenya Power under the Power Africa initiative.