House exempts Japanese firms, personnel from tax

All Japanese companies, employees and consultants undertaking projects funded through grants in Kenya will be exempted from tax.

The National Assembly yesterday passed a motion for the exemption based on a report by the Committee on Delegated Legislation, which was evaluating the legality of a gazette notice issued by Treasury Cabinet Secretary Ukur Yatani early this year.

In February, Mr Yatani through a gazette notice exempted the Japanese from paying taxes. 

The move, however, had to be approved by Parliament to take effect.

Section 13 (2) of the Income Tax Act empowers the Cabinet Secretary for Treasury to exempt from tax income from such projects. 

“The minister may, by a notice in the Gazette, provide... that any income or class of income which accrued in or was derived from Kenya shall be exempt from tax to the extent specified in such notice,” reads the Act.

The Committee on Delegated Legislation, which is chaired by Tiaty lawmaker William Kamket, is mandated under Standing Order 210 to consider any statutory instrument and determine whether it is in accordance with the provisions of the Constitution.

The exemption covers Japanese companies, consultants and employees involved in projects under financing agreements signed between Kenya and Japan.

This means the Japanese companies, consultants and employees currently involved in the 14 ongoing projects across the country – all valued at Sh328 billion – will not pay a single cent to the taxman. 

The projects include Olkaria V Geothermal Power Development Project, which cost Sh66.9 billion and the first phase of the Sh38.2 billion Mombasa Special Economic Zone Development Project.
Others include the first and second phases of the Mombasa Port Area Road Development Project, which cost Sh29 billion and the first phase of the Mombasa Port Development Project (Sh22 billion).

Mwea Irrigation Development project, health sector policy loan for attainment of Universal Health Coverage (phase 2) and infrastructure development in Mombasa special economic zone near Dongo Kundu area are also covered by the tax exemption. 

All agreements signed between the Japanese government and the government of Kenya will be subject to the tax exemption.

The MPs argued that the exemption is not limited to Kenya but is a requirement by the government of Japan for all financing agreements even with other governments.

“The overall benefits to be derived from effective and efficient implementation of these projects outweigh the tax forgone. In addition, the income from the jobs created in these projects and the income derived from the expenditure on these projects generates revenue that is far above the tax forgone as a result of the exemption,” reads the report adopted by the House yesterday.

Although the committee in its report raised concern that the tax exemption amounts to discrimination since Kenyan companies and workers in Japan do not enjoy similar benefits, the argument was overruled on the floor of the House as the government of Kenya does not provide grants to the government of Japan for the projects they undertake.

Majority leader Amos Kimunya said extending tax exemption to Kenyan companies in Japan would be like comparing oranges with mangoes.

“Kenya is not giving concessional loans or grants to Japan hence Kenyan companies cannot enjoy the same treatment in Japan. It would amount to double taxation to tax the Japanese here and the employees also pay taxes back in their countries,” Mr Kimunya said.

“If we want the matter of reciprocity to apply to our companies, then we must pull ourself as a country and improve our economy so as to be able to give grants to Japan,” added Mr Kamket.

In Kenya, all the income of a person, whether resident or non-resident, which is accrued in, or derived locally is subject to income tax. It is charged at 30 per cent for firms and highly paid employees.

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