The preferred contractor for the Nairobi–Nakuru–Mau Summit Highway is heading into talks with the government seeking a raft of tax reliefs—including a 30-year corporate income tax exemption on toll revenues.
The consortium says the goal is to keep tolls affordable for motorists while making the project bankable for investors over the life of the concession.
A summary of the evaluation report published by the Kenya National Highways Authority (Kenha), the contracting authority, shows that the consortium of China Road and Bridge Corporation (CRBC) and the National Social Security Fund (NSSF) Trust has requested 18 tax exemptions. The government has since settled on the privately-initiated-proposal (P-i-P) for the CRBC-NSSF consortium.
Some of the tax sweeteners the bidders are looking for include relief from county cess and other levies that they argue raise the cost of delivering Sh170 billion toll road from Nairobi to Mau Summit in the Rift Valley.
However, the government has insisted that the CRBC–NSSF consortium should enter negotiations having designed the project under the existing legal tax regime.
The requested adjustments may only be considered for discussion at a later stage, and cannot be treated as pre-conditions for moving the project forward.
“The Proponent is to proceed to the next stage subject to unequivocal and unconditional confirmation that it shall…apply the existing legal tax regime to the project,” reads a summary brief of the project development phase documents for CRBC and NSSF. This sets a firm baseline for talks.
The CRBC–NSSF consortium has sought exemptions on virtually every tax applicable to the project, including value-added tax (VAT), corporate income tax, withholding tax and import duty—cost items they say feed into the eventual tolls that users pay.
The bidders argue that targeted reliefs would ease cash flow pressures and support faster delivery.
The group is seeking a corporate income tax holiday on toll revenues collected from motorists using the upgraded road over the 28-year concession period. They also propose that toll fees should not be subjected to the 16 percent VAT. Their view is that trimming these charges will reduce operating costs and help keep the price per kilometre in check for users.
The CRBC-led consortium has proposed a base toll of Sh8 per kilometre, adjustable to reflect inflation and exchange rate movements.
Under this approach, the toll would start at a set level and then rise modestly each year to account for the cost of money and imported inputs needed to maintain the road.
The proponent also wants VAT zero-rating for goods and services procured locally and imported for use on the project. This covers the construction of the road from Nairobi via Nakuru to Mau Summit, and the Nairobi–Maai Mahiu–Naivasha link. They further seek excise duty exemptions for imported or locally purchased vehicles above 1,500cc used on the project.
Additional requests include exemptions from import duty and the Export and Investment Promotion Levy on equipment and materials used on the road.
The consortium also proposes withholding tax exemptions on payments to non-resident expatriates during construction and operation, covering income, dividends, insurance premiums and interest on loans. They want similar relief for payments to resident contractors and agents working on the scheme.
Beyond operating taxes, the bidders want changes to the Income Tax Act to improve cash flow over the concession. They seek permission to carry forward tax losses from the project throughout the period by amending Section 15. They also want relaxation of interest deduction limits so all project-related interest can be deducted during the concession.
In addition, they propose a Capital Gains Tax exemption when the project special-purpose vehicle’s shares are transferred during the concession and again when the road is handed back to the government. This would require changes to the Eighth Schedule of the Income Tax Act.
The consortium also seeks relief on stamp duty. It wants renewal of a discontinued legal notice that granted exemptions for secured loan agreements used to fund strategic infrastructure. It further asks for renewal of Legal Notice 60 of 2016 to exempt stamp duty on the initial nominal share capital of the project company.
At the county level, the bidders want local levies and cess to be waivable under existing law. They point to the Public Finance Management Act, 2012 and county Finance Acts, which allow County Executive Committee Members for Finance to waive or vary county taxes, fees and charges under set criteria and proper documentation.
Taken together, the bidders say these measures would lower financing and transaction costs, ultimately helping to keep toll fees affordable for motorists.
The government, however, faces tight fiscal constraints and is likely to be cautious about granting extensive concessions when public finances are strained.
