National carrier Kenya Airways (KQ) has been granted tax exemption on specialised services tapped from foreign firms and consultants, handing a boost to the airline fighting for profitability.
In changes through the newly signed Finance Act 2025, KQ has been exempted from paying withholding tax on any payments it makes to non-resident service providers for certain specialised services, not available in Kenya.
“Section 35 of the Income Tax is amended— (a)in subsection (1) (i) in paragraph (a) by inserting the following new subparagraph immediately after subparagraph (ii) -(iii) payments made by the national carrier to a non-resident for specialised technical, maintenance, compliance, training, or digital systems support services, where such services are not available in Kenya or the service provider is certified or accredited by an international regulatory, standard-setting, or licensing body,” the Finance Act 2025 says.
Maintenance is particularly a high-cost element for KQ which often relies on foreign specialists for services such as the overhaul of engines for its fleet.
Analysts said the exemption would boost KQ’s cost management plans by cutting the taxation.
“The exemption intends to lower the cost incurred by the national carrier in accessing specialised services not available in Kenya. This is because without such an exemption from withholding tax, the national carrier would be required to gross-up the fees paid for such specialised services, thus incur the withholding tax expense,” law firm Bowmans said in a note.
A stronger shilling coupled with the reduction of dollar-denominated loans and higher turnover, helped to lift KQ to its first full-year profit since 2012, booking a record Sh5.4 billion in net earnings last year.
The airline reversed a loss of Sh22.6 billion in 2023 to set a historic record profit after it realised Sh1.2 billion in foreign currency exchange gains from a loss of Sh19 billion in the prior year.
The local unit appreciated to trade between 129 and 130 units against the greenback at the end of 2024 from Sh160 in January, helping reduce KQ’s dollar-denominated borrowings and lease costs.
The airline’s profits were also linked to higher revenues from increased income from operations, which saw it post records on both the number of passengers lifted and total income generated.
The airline’s revenues reached a high of Sh188.4 billion in 2024, up from Sh178.4 billion in 2023, while passenger numbers rose by 4 percent to a record of 5.23 million, complementing a 25 percent rise in cargo volumes to 70,776 tonnes from 56,576 tonnes, previously.
