How Kenya Protects Foreign Companies Operating Within the Country
Kenya, one of the most strategically located countries in Eastern
Africa, is quickly becoming a hub of industry and investment. The country has
been ranked among the top nations on the continent for foreign investment and
has contracts with countries worldwide.
These companies range from manufacturing to retail, including
massive international brands such as British American Tobacco, Standard
Chartered, and the Coca-Cola Company. These companies, among others, have
invested billions in the country to reach local markets, take advantage of the
country’s position, and expand their holdings.
Trade Relations
Companies don’t invest in the country on a whim when looking to
expand into new territories. The government has strong trade relations with
others like Uganda, the Netherlands, the United States, and the United
Kingdom.
With these trade relations comes trust that companies from these
regions can rely on when investing in Kenya and starting local ties. What aids
in these relationships is the fact that the Kenyan government has taken a
proactive stance on making the country favorable to foreigners—even going so
far as to make it more appealing to invest for them than for locals.
Kenyan Tax Relief
One of the biggest things Kenya has done to attract foreign
investment has been offering tax relief to specific countries with a good trade
relationship. These also benefit Kenyans by providing the same relief in
reverse and have made great strides in encouraging outsiders to operate in the
local market.
The first of these occurred in September 2023. Under new trade
policies, Kenya will offer preferential
tax policies to any Chinese company operating
in the local market. The move not only bolsters investment from China but is
also set to improve bilateral relations between the nations, benefiting Kenyans
in the long run.
Under the new exemptions, which are still being finalized, these
companies will receive relief on the four types of tax that the Kenya Revenue
Authority (KRA) charges. These include wear and tear allowances, investment
deductions, farm-work deductions, and industrial building deductions.
With Kenya importing more than $8.25 billion of goods from China
in 2022, the country is also considering signing a double taxation avoidance
agreement, or DTA, with China. This is alongside the DTA with Bangladesh, which
is currently in final discussions.
This DTA, which allows for Bangladeshi companies operating in
Kenya to be exempt from paying any form of tax except what is owed in the Asian
country, will work both ways, with Kenyan companies in Bangladesh also offered
tax relief. The move will remove any tax evasion opportunity and lighten the
load on businesses by eliminating double taxation.
The only time the DTA will not be recognized is if a company from
either nation takes up a permanent establishment in the other. Should this
occur, the company or brand will be subject to local taxation as if it were a
local business.
With both the creation of tax exemptions and DTAs, Kenya is
welcoming new businesses of all forms. These include manufacturing that uses
the country’s extensive workforce to those operating in specific niches like
the iGaming sector through resources like casinos.com. However, this influx of
investment has come at a cost.
Tax Collection
While Kenya is fighting to protect foreign companies operating
within the country by offering tax exemptions and other regulations that make
it more affordable and worthwhile, local taxes are rising. This growth led
President William Ruto, elected in 2022, to be labeled the tax
collector.
Despite the tax break for foreigners, locals have been subject to
increased personal income tax, which can now reach up to 35% depending on
wages. In addition, fuel taxes have risen to 16%, medical insurance to 2.75%,
and a new housing tax of 1.5% has been introduced.
A 3% levy on turnover has been implemented for local businesses
that needs to be paid on gross revenue. For many small businesses operating in
the country, this has led to devastating effects on viability and resulted in
many needing to increase prices drastically to stay profitable.
Since these changes have come into play, the country has reported
more than 70,000 job losses in the private sector alone. As of December 2023, a
further 40% of local businesses that aren’t backed by foreign funding are
considering scaling back operations and reducing their workforces.
Government Response
While many have been calling for the government to focus more on
protecting locals and home-based businesses above the interests of foreigners,
these calls have seemingly fallen flat. Speaking on the country’s independence
day, President Ruto acknowledged the hardship of the additional taxes but did
not remark on lowering the leniency on foreign companies.
Instead, the KRA and government have said that the taxes are a
matter of necessity to save the country from spiraling national debt, which had
accumulated to more
than $70 billion by the end of 2023. Locals,
however, claim a different story.
Many have questioned the government’s excessive spending, with
officials’ travel expenses particularly being questioned. After 40
international trips in the year, the president defends against these calls by
stating that the government has made budget cuts to ensure that travel expenses
and other spending align with revenue.
Conclusion
Despite the government’s insistence that measures are being
implemented to mitigate expenses and control debt, locals have found it hard to
see where these measures are being executed. Alongside this, the government’s
protection of foreign companies over those of residents has become a
substantial issue of contention in the country—especially among rising levels
of unemployment, which is forecast to reach 6.19% in 2024.
As the aforementioned tax exemptions and DTAs are formalized, the
government must pay special attention to balancing the need for foreign
investment with caring for local residents. Failure to do so could result in
civil unrest, rising prices, and lowered employment, making foreign investment
policies useless as investors may consider going elsewhere.
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