The National Treasury has unveiled plans to lower the current rate of corporate tax as part of efforts to attract investors to the country.
In the Budget Policy Statement (BPS) released in February, it was noted that the tax rate would be decreased from the existing 30 per cent to 25 per cent.
Corporate tax is usually applied to profit made by a company over a specified period (gross income minus gross expenditure).
"The Government will reduce the corporate rate of tax from the current 30 per cent to 25 per cent over the strategy period. Kenya's Corporate Income Tax (CIT) rate is at 30 per cent compared to the world average of 23 per cent and the African average of 29 per cent," read the policy statement in part.
The Treasury explained that the reduction of the tax rate would serve as an incentive for foreign investors looking to establish operations in the country.
The current rates have also made investors in the country look for other markets.
"Studies have shown that high rates of corporate income tax discourage foreign direct investments and encourage investors to lobby for lower rates or tax exemptions.
"Further, high rates contribute to increased tax planning and reduced compliance by taxpayers, which in the case of Kenya, has contributed to a decline in income tax as a share of GDP," read the statement in part.
Kenya's taxation policies have already prompted multiple mega-multinational companies to leave the Kenyan market in recent years.
Notably, the Henley Private Wealth Migration Report 2023 revealed that 100 millionaire investors departed from Kenya in 2022. A similar number was estimated to have left the country in 2023.
Therefore, should the tax rate be reduced, Kenya could regain its competitive advantage against Tanzania and Uganda whose rate is still set at 30 per cent.
Rwanda, however, reduced the tax rate from 30 per cent to 28 per cent in September 2023 in a similar move aimed at attracting investments.
Ruto's Woo for Investors
Ruto has in recent months been on a charm offensive to woo billionaires to set shop in Kenya. According to the Head of State, this strategy will also help in the creation of job opportunities for the youth.
Some of the companies which have declared intentions to set shop in Kenya include global financial institutions, JP Morgan and PepsiCo.
The Bill & Melinda Gates Foundation and TikTok are also set to establish headquarters in Kenya.
