Economic overview
Kenya is the main economy of East Africa and one of the most important markets in Sub-Saharan Africa. For almost 10 years, the country’s economy has recorded constant growth rates ranging between 4 and 6%. It has shown great resilience during the pandemic, with a major rebound to 7.5% per cent in 2021, up from – 0.2% in 2020, led by the service sector, which itself accounts for more than 50%. of GDP.
The forecasts on the Kenyan economy are positive. Growth of close to 6% is projected for the next three years, supported mainly by the services, telecommunications, infrastructure investments, commercial and institutional reforms and greater regional integration. This growth scenario is also supported by the consolidation and further increase of the middle class and its consumption capacity.
However, Kenya is called upon to address and resolve the structural deficiencies that limit development potential: insufficient infrastructure, energy deficit, bureaucratic streamlining to facilitate regional trade and combat high rates of corruption.
From a macroeconomic point of view, analysts and economists have recently raised a concern regarding the sustainability of the country’s public debt. The IMF, the World Bank and the EIB, however, stressed that they are not particularly alarmed by the debt emergency, as long as Kenya follows the path of fiscal rigor and compliance with financial obligations. A balanced relationship between economic growth and greater social inclusion remains the main challenge that these authorities are called to face.
Main sectors of industry
The backbone of the Kenyan economy remains the agricultural sector. In fact, 65% of Kenya’s exports derive from this sector, which alternates high production levels within some large companies and plantations but which, for a large part, still appears to be based on family or community subsistence, where low levels are recorded. of technology, low productivity and total dependence on rain.
The manufacturing sector, even if it has ample room for growth, accounting for only 11% of GDP, is still the most advanced in the region and could record considerable increases in the future. In fact, industrialization is of strategic importance in the social and economic development agenda of the country and could contribute to the transfer of know-how and the creation of jobs. The service sector, especially the ITC, in recent years is the one that has reported the highest growth rates, making Kenya one of the most advanced African countries in terms of connectivity, close to European levels.
The tourism sector in recent years, due to the worsening of the security situation and the global crisis, has undergone a clear deterioration; however, there was an encouraging recovery in 2017, a trend that should also be confirmed in 2018.
Taxation for businesses in Kenya
Corporation Tax
Corporation Tax is the income tax produced by corporations. For resident companies, the rate of 30% per year will be applied, while for permanent establishments of foreign companies the rate is 37.5%. Following the Covid-19 epidemiological crisis, the rate for resident businesses was lowered to 25%. For listed companies, the rate is 25% for the first 5 years from listing.
The simplified tax regime for real estate leases up to KES 15 million is also envisaged for resident companies, which provides for the application of a single rate of 10% on gross income received without the possibility of further deductions.
Minimum Tax
Starting from the 2020 tax period, a minimum tax of 1% on annual gross turnover has been introduced, which affects the company even if it results in a tax loss. Small and medium-sized enterprises with a turnover of less than KES 1 million are exempt. The tax does not apply to rental income and to those deductible from certain activities.
Turnover tax (Tot)
In 2020, the Turnover tax, (“TOT”) or the tax on turnover, already introduced in 2006, then repealed and subsequently reintroduced by the financial law of 2019, came into force. The tax, payable by companies that have a higher annual turnover to 1 million KES but less than 50 million KES, is determined by applying the rate of 1% on the annual turnover without the possibility of deducting expenses.
Investing in Kenya
Export Processing zone (EPZ) and Special Economic Zone (SEZ)
In order to attract investments in the area, since the early nineties, the government has created over 40 special areas located throughout the country called Export Processing Zones (EPZ). The companies located in these areas, whose activity is mainly directed to export, enjoy a series of tax and customs incentives including, for example, being subject to the tax on legal entities at a rate of 0% for 10 years from their constitution and 25% for the next 10 years.
The companies located in the areas defined Special economic zone (SEZ) enjoy, for the purposes of determining the income tax of legal persons, a reduced rate equal to 10% for the first 10 years of activity and equal to 15% for next 10 years. In addition, the sales of goods or services made to SEZ companies are subject, for the purposes of value added tax, to a rate of 0%.
Deduction for investments
With the budget law of 2020, many tax exemptions have been reduced. For example, the planned investment allowance for hotels and manufacturing industries was reduced from 100% to 50% in the first year of use. No deductions are allowed for book depreciation or depreciation of assets or other assets.
Exemptions for entrepreneurs enrolled in the Ajira Digital Program
In order to facilitate the inclusion of young people in the new digital professions, the Government has launched a plan called Ajira Digital Program which offers training, consultancy but also the exemption for the first three years of activity from the income tax received by new entrepreneurs. who have enrolled in the program.