SEZ companies get tax incentives of Sh1.9 billion over nine years

Companies operating in Kenya’s special economic zones (SEZs) have been exempted from paying Sh1.98 billion in taxes and other levies in the nine years to 2023, Parliament was told.

The incentives include protection from corporate tax, withholding tax and value added tax (VAT) and are offered to developers and companies in SEZs to encourage local investment.

The Kenya Revenue Authority (KRA) told the Parliamentary Committee on Finance and National Planning that for the period 2015 to 2023, a total of Sh4,085,454,461 was estimated for the 37 special economic zones.

“A total of 1,987,249,558 were exempt from the tax computed. Therefore, SEZ entities that have been issued customs codes and operate from the customs area paid Sh2,090,251,963 in taxes,” said KRA Deputy Commissioner for Policy and Customs, David Ontweka.

The KRA leadership appeared before the committee chaired by Molo MP Kuria Kimani to respond to questions raised by Mbeere North MP Geofrey Ruku on taxes not collected in the SEZs.

Ruku had requested a detailed schedule of tax exemptions for each category of exempt taxes between 2015 and 2023 and for each company in the special economic zone.

Ontweka told parliamentarians that the KRA began facilitating SEZs in 2022 and issued guidelines for the appointment or operation of an SEZ, which were published on June 9, 2022, through official gazette number 6930.

He said the KRA has issued import/export codes to 31 SEZs to facilitate the operations of the entities.

“The issuance of codes effectively incorporates SEZ operators into the customs systems for the purposes of various customs transactions,” Mr Ontweka said.

“The Special Economic Zones Authority (SEZA) has facilitated the declaration and publication of 37 SEZs in the country, of which 30 are private and seven are public.”

He said the public SEZs include Naivasha SEZ, Konza City SEZ, Dongo Kundu SEZ, Sagana Agro-Industrial City (SAIC) SEZ, East African Free Zone SEZ and Economic Zone. from Africa.

Investment Promotion PS Abubakar Hassan said 56 companies had established businesses in the 12 SEZs that are currently operational.

“So far, $960 million has been generated in terms of investment and around 5,000 jobs have been created,” Hassan said.

A report submitted by Ontweka shows the International Committee of the Red Cross, Tatu City, Two Rivers Mall, Eco Ross Limited, Unity West SEZ Limited, Impact North SEZ, Twiga Tatu Limited, Ziara Special Economic Zone Limited, Geokim Supplies Company and Mount Kipipiri . Golf and Resort (SEZ) were the biggest beneficiaries of the tax breaks.

The tax exemptions ranged from Sh2.35 million to Sh604 million annually.

Esther Wahome, Deputy Commission in charge of Internal Revenue and Policy, told the committee that 12 SEZs were assessed and the taxes calculated amounted to Sh154.74 million. She said of the taxes computed, SEZ entities paid a total of Sh37.77 million and SEZ entities paid Sh116.97 million.

“The number of exemptions and exemptions has been extended to SEZ promoters, operators and companies with respect to corporate tax, withholding tax, value added tax (VAT), including VAT on imports and duties every year,” Ms. Wahome said.

“Customs taxes not collected by SEZ entities from 2015 to 2023 are estimated at Sh1,987,249,558. This includes the Import Declaration Form.”

He said the estimated lost VAT for the period 2015 to 2024 is Sh545.78 million for SEZ entities, while the income tax (corporation tax) waived in the period analyzed for SEZ entities It is estimated at 167 million shillings. As for pay-as-you-earn taxes paid by each of the 12 SEZs, Sh1,049,088,204 was collected between 2015 and 2023.

“SBM Special Economic Zone and Mombasa Industrial Park Special Economic Zone do not have PINs,” said Ms Wahome.

“The Northlands, Dongo Kundu and Naivasha Special Economic Zones have no PAYE obligation. The PAYE obligation is not mandatory.”

Kimani and Ruku demanded to know the safeguards in place to ensure that the KRA collects taxes from the SEZ.

Ruku stated that there is a large tax evasion plan by the SEZs that falls directly on some offshore companies that each SEZ has.

“Some of these companies made profits but did not pay dividends. Some SEZs have carried out land transactions and sales but have not paid taxes,” Kimani said.

The KRA said it is seeking a law change to strengthen controls and management of SEZs to ensure all taxes are paid.