The Finance and National Planning Committee of the National Assembly has rejected a proposal by the National Treasury to take away the preferential corporate income tax rate paid by local motor vehicle assemblers and developers of at least 100 residential housing units.
The parliamentary committee argued it was too soon to eliminate the preferential rate of 15 percent corporate tax introduced two years ago in a bid to attract large investors into the country.
Treasury Cabinet Secretary (CS) John Mbadi had proposed taking investors back to the 30 percent rate paid by others noting the incentive had not borne expected results.
“Removing the incentive risked disrupting ongoing investments, diminishing investor confidence, and undermining national efforts to promote local manufacturing and reduce the housing deficit,” said the committee chaired by Molo Member of Parliament Kuria Kimani.
“Retaining the 15 percent corporate tax rate was viewed as necessary to uphold policy stability, encourage long-term investment, and maintain momentum in these vital areas of the economy,” added the lawmakers.
The preferential rate was introduced in 2023 and was to run for five years.
The number of locally assembled vehicles, however, dropped by 14.58 percent in 2024 despite the incentive. Data from the Kenya National Bureau of Statistics showed that local assemblers rolled out 11,555 units in 2024 compared to 13,527 in 2023.
The construction sector also slowed down with cement consumption, a critical input in real estate output, declining by 10 percent to stand at 2.197 million tonnes in the third quarter of 2024 compared to a similar quarter in 2023.
The drop in numbers could have been the trigger for CS Mbadi to pull the plug on the incentives.
However, declining numbers were posted at a time of high cost of financing with commercial interest rates rising above 20 percent and during a tumultuous political period marked by the Gen Z protests in June of 2024.
The Kuria-led committee noted large investments take time to birth, fund, and execute with the two-year period Treasury was relying on to declare the incentive unproductive inadequate. Investors also needed a predictable working environment and the sudden review of the tax rate would negate this principle of a tax regime.
Developers of large real estate projects exceeding 100 units are deemed to support the government’s goal of affordable housing projects. Housing projects are huge job creators too, especially in the informal market.
The Treasury is in a tight position to fund a Sh4.29 trillion budget without aggressive tax measures while keeping a lid on the public debt.
