Tax experts say the tax incentive will help make locally produced goods competitive in comparison to imported low-cost merchandise.
Industrial power costs have remained stubbornly high, pushing up operation costs for firms who in turn pass it on to consumers through higher prices.
Manufacturers will pay less income tax following changes to law that allows them to deduct 30 per cent of their electricity bill from earnings that is subject to taxation.
The Finance Bill 2018 allows industries to deduct 30 per cent of their electricity expenses from their taxable income in the latest government drive to cushion factories from higher costs, cut consumer goods prices and grow demand.
If implemented, it will see manufacturers enjoy a corporate tax rate that is lower than the 30 per cent paid by firms in other sectors.
“Section 15 of the Income Tax Act is amended by inserting (deductions of) thirty per cent of electricity cost incurred by manufacturers in addition to the normal electricity expense, subject to conditions set by the Ministry of Energy,” the proposed law says.
Tax experts say the tax incentive will help make locally produced goods competitive in comparison to imported low-cost merchandise.
“This is a good one. It gives a very direct, pointed benefit to manufacturers,” said Michael Mburugu, a senior tax expert at PKF.
If, for instance, a manufacturer’s power bill stands at Sh100 million per year, they stand to save about Sh9 million from the tax relief, calculated against the country’s 30 per cent corporate tax.
Industrial power costs have remained stubbornly high, pushing up operation costs for firms who in turn pass it on to consumers through higher prices.
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