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Tax-incentive investment threshold halved to attract inflows
President William Ruto makes his remarks at State House on November 19, 2024. Ruto recently formed a task force to investigate the reason why businesses were exiting Kenya.
The threshold for investments that qualify for tax incentives offered for capital expenditures in the manufacturing or hospitality sector in Kenya, has been halved to Sh1billion in a strategy to woo investors.
The changes, through the Tax Law Amendment Act 2024, which was signed by President William Ruto, will take effect on December 27—allowing investments of Sh1 billion to be deducted from the income that will be subjected to corporate income tax as the country moves to revamp its industrial competitiveness.
Currently, the government allows investors to deduct manufacturing investments of Sh2 billion, which only serves deep-pocketed investors.
These investments are subject to investment allowances of up to 150 percent, which means in the first year the entire amount will not be taxed.
Analysts reckon the reduction in the threshold for investment allowance, will help attract investors into sectors such as manufacturing and hospitality.
“The lower threshold will ensure that more investments are now able to enjoy the investment deductions,” Alex Mathini, Andrew Oduo and Samual Githanda, of law firm Bowmans Kenya said in a joint commentary on the changes.
“Investment deductions are incentives for investments made in manufacturing including the construction of a building used for manufacture or machinery used for manufacture and hotel buildings,” they added.
Kenya has been losing its competitiveness to its neighbours, with industries shifting base to countries such as Ethiopia and Egypt.
President Ruto recently formed a task force to investigate the reason why businesses were exiting Kenya.
High taxes is one of the reasons some businesses find the business environment in the country harsh, though government proponents insist Kenya’s tax is not that high compared to its peers. Some experts have noted that these tax holidays have outlived their usefulness, with beneficiaries not creating jobs.
For a while, Kenya has given incentives for investors to set up industries outside of major cities such as Nairobi and Mombasa, but even that has not boosted industrialization.
