The National Treasury is planning to delay tax incentives meant to encourage investments in Kenya’s special economic zones (SEZs), upcountry manufacturing and hospitality, in what experts warn could slow down funding to the sectors.
In the Finance Bill, 2025, the Treasury has proposed removing the provision in the Income Tax Act that allows firms to claim investment allowances of up to 100 percent in the year they are spent.
Instead, the Treasury wants firms to claim 50 percent of the invested amount in the first year and then equal instalments of 25 percent in subsequent years, effectively extending the time for claiming the tax incentive to three years.
An investment allowance is a tax incentive designed to encourage capital investments by businesses, enabling them to deduct a portion of their capital expenditures from taxable income.
Currently, the government allows companies that invest Sh1 billion in hotel and manufacturing buildings and machinery outside Nairobi and Mombasa over the previous three years to claim back a 100 percent investment allowance.
It also allows the claims for investments made in SEZs, which are designed to incentivise investments in key economic areas to drive growth and development.
Investors in urban areas could claim a 100 percent investment allowances if the investment was worth at least Sh250 million, but only in the year it was made. This will also change if lawmakers pass the proposal.
Experts warn that this will lengthen the process of claiming the investment allowances, which could be a disincentive to funding crucial economic sectors and slow regional development.
“The impact of this proposal is that capital allowances on capital expenditure relating to hotel buildings, buildings used for manufacture and machinery used for manufacture will be claimed at the rate of 50 percent in the first year of use and the balance in equal instalments of 25 percent which is a slower rate of claim,” noted Alex Mathini, a partner at law firm Bowman’s Kenya.
Key sectors rely on the tax incentives granted to SEZs to encourage investors to pump investments into them, and the new proposal may not portend good news for them.
Konza Technopolis project, for example, has long overshot its timelines and is counting on its SEZ status to attract investors to make Kenya's smart city dream a reality.
