Kenya to extend preferential tax policies to Chinese – owned companies

By Steve UMIDHA

Kenya will extend preferential tax policies to Chinese – owned companies looking to expand local operations, in a boon expected to bolster bilateral relations between the two nations.

Presently, the national Treasury through the Kenya Revenue Authority (KRA) spreads wear and tear allowances, industrial building deduction, investment deduction and farm-works deductions to foreign firms setting up locally.

The wear and tear allowances are charged on capital expenditure on machinery and equipment where they are classified into five classes all of which are offered the allowances at different rates, including a 37.5 per cent per year on earth moving equipment and self-propelling vehicles like lorries, a 30 percent rate on equipment like computers and a 12 percent rate on telephone sets or switch boards among others.

Other privileges include a 10-year withholding tax exemption on dividends and remittances paid to non-residents, 100 percent investment deduction on capital expenditure for 20 years as well as exemption from customs duties on imported inputs.

But the country’s chamber of commerce and business is now seeking urgent clarification on whether the government can further extend or come up with new tax policies that enable foreign investors to benefit from taxable deductions.

Ronald Kibaara, the vice chairman of the Kenya National Chamber of Commerce and Industry (KNCCI), said last week that the government will accelerate such talks through relevant State agencies to actualize the pledges made to the visiting Chinese business owners.

“We want to have a unified licensing and tax and licensing model, and these are the things we want to take down not only to the business community that is doing high trade, but we’re looking at even the small and medium businesses,” he said.

He made those revelations on the sidelines of the just concluded Kenya International Industrial Expo 2023 held for the sixth time this year.

This comes amid a recent report on tax compliance showing that Kenya and China are on the cusp of signing a Double Taxation Avoidance Agreement (DTA), a move anticipated will create a space for investors to invest locally and exempt them from double taxation. It will also reduce operational costs for Chinese investors in Kenya.

China is Kenya’s main trading partner and the trade deficit between the two countries has widened as Chinese exports to Kenya have increased over the years hitting US$8.25 Billion in 2022, according to the United Nations COMTRADE database on international trade.

Nairobi exported US$40.5m worth of fish and fishery products in 2022. Chinese company Huawen Food recently exported the first consignment of dried wild anchovy from Kenya to China. The initial 315kg was destined for the third China-Africa Economic and Trade Expo, which took place in Changsha earlier this month.

As an expansion of the business and strengthening the bilateral ties between China and Kenya, the Kenya National Chamber of Commerce said it is building an office in China to enable “Kenyan businessmen to be able to transact and do business in China.”

Since 2018 to date, according to Gao Wei, the Managing Director of Africa Export Kenya Limited, the Expo has seen several Chinese firms registered locally and vice versa between the two markets.

This article first appeared on People Daily by the same author