Introduction


Kenya has since independence adopted various economic policies with a view to achieving sustainable economic growth and development. Upon attainment of independence in 1963, the country’s economic policy was articulated in Sessional paper No.10 of 1965, titled “African socialism and its application to planning in Kenya”. The paper defined the strategy to promote rapid economic growth through public sector programs, encouragement of both smallholder and large-scale farming, and the pursuit of accelerated growth of private sector investment.

The economic policies adopted thereafter have not only been influenced by domestic challenges but also external factors, particularly the realities of liberalization and globalization. These realities led to the drawing up of Sessional paper No.1 of 1986, on “Economic management for renewed growth”, which proposed several fiscal and monetary reforms aimed at realizing economic recovery and growth through liberalization.

Since 1993, Kenya has made significant progress in eliminating exchange controls, including restrictions on inward portfolio investments, and has removed trade restrictions, except for certain sensitive products in health, security and environment. The government recently (2008) concluded pursuing the “Economic Recovery Strategy for Employment and Wealth Creation” policy, which sought to realize higher economic growth rates through improved economic management and governance, as contained in the National Rainbow Coalition (NARC) manifesto; 2003 to 2007. It is now pursuing the Vision 2030 policy, which seeks to make Kenya a “newly industrializing country” with high living standards for its people by the year 2030.

Business & Investment Policy

The government encourages both domestic and foreign investments, and provides a conducive environment and attractive incentives to investors. There are no restrictions on foreign investment, foreign ownership and repatriation of profits or capital. Investment in the Export Processing Zones (EPZs) and Manufacturing Under-Bond (MUB) enjoys a 10-year tax holiday, followed by a 25% tax rate for the next 10 years, and is exempt from import duties, VAT and sales tax. The Export Processing facility operates in a number of Private and Public Export Processing Zones. Foreign ownership in listed Kenyan companies is generally restricted to 40% in the aggregate and 5% for each individual investor.

• Investment allowance: new investment or expansions are granted allowance on plant machinery, building and equipment;
• Depreciation: liberal rates are allowed for depreciation of assets, based on book value;
• Loss carried forward: to be offset against future taxable profits.

• Repatriation of capital and profits after payment of the relevant taxes;
• Kenya’s membership of the Multilateral Investment Guarantee Agency [MIGA].
• Kenya’s membership of the International Centre for the Settlement of Investment Disputes.

The membership to the above international investment bodies and the Kenya constitution guarantee against expropriation of private property, except for purposes of public use or security, and also prompt and fair compensation in the event of such expropriation.

Investment opportunities exist in nearly all sectors, and especially in agro-based industries, machinery and building materials, furniture and paper products, garments and textiles, jewellery, food processing, cosmetics, pharmaceuticals, solar technology products, IT/data processing, tourism, banking and financial services, housing, roads, ports, railways and the energy sector.

Taxation

Corporate tax presently stands at 30%. Withholding tax on dividends is 5%. However, inter-corporate dividend payments between closely held companies are exempt from withholding tax. Dividends received by financial institutions as trading income are not subject to tax.

Value Added Tax (VAT) is levied on the supply of goods imported into or manufactured in Kenya, and taxable services imported or provided in Kenya. The standard VAT rate is 16%. Unprocessed agricultural products are exempt from VAT. Inputs into health care, education and agricultural sectors are zero-rated. All exports of goods and services are zero-rated.

Excise duties are levied on beer, tobacco products, matches, spirits, wines, mineral water and biscuits (confectioneries).

Personal tax is charged on the income earned in Kenya by any person resident in Kenya. Individual income tax is taxable at rates graduated upto 30%. Tax allowances are provided for all individual taxpayers. Taxable income includes all business income, employment income, dividends, and interest and property income.

Privatization

Through privatization and restructuring of parastatals and other state-owned companies, the government seeks to divest in public-owned companies. The government has reduced its share holdings in the Kenya Commercial Bank, the National Bank of Kenya, Serena Hotels and Kenya Airways and in many other parastatals.

Restructuring and reforming of key public enterprises such as the Kenya Ports Authority (KPA), Kenya Railways (KR), the Kenya Power and Lighting Company (KPLC) and the Kenya Posts and in Telecommunications Corporation Paraststals have already taken place. As a result, the energy sector now has the Kenya Electricity Generating Company (KenGen) and the Kenya Power and Lighting Company (KPLC), while in the telecommunications sector, there is the Postal Corporation of Kenya, Telkom Kenya Ltd. and the Communication Commission of Kenya (CCK).

As a result of restructuring and reforming the economy, there is great participation of the public and foreigners in the ownership of large companies in the infrastructure, transport, power and telecommunication sectors such as Kenya Airways, Kenya Railways, KPLC, KENGEN, Geothermal Development Co., Safaricom, Telcom etc

Markets Access

Over and above the domestic demand, Kenya’s membership of several regional bodies provides an expanded market. Membership to the East Africa Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) guarantees a market of approximately 300 million people, and provides for free movement of goods and services.

Exports from Kenya enjoy preferential access to the European Union under the ACP-EU framework. In addition, Kenya is one of the beneficiaries of the African Growth and Opportunity Act [AGOA], which provides for preferential market access to the USA.