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{
"id": 1590412,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1590412/?format=api",
"text_counter": 342,
"type": "speech",
"speaker_name": "Molo, UDA",
"speaker_title": "Hon. Kuria Kimani",
"speaker": null,
"content": "Convention that permits source-based taxation of international transport services. This reinforces Kenya’s commitment to a fair, modern, and globally aligned tax system. Clause 26(e) that addresses taxation framework for Special Economic Zones (SEZs) proposes to limit tax incentives strictly to licensed SEZ developers, operators, and enterprises, rather than these benefits broadly across all entities within the zone. The Committee observed that the current approach has enabled excessive access to incentives. It has been abused in some instances, resulting to high fiscal costs without commensurate economic benefits. The proposed adjustments seek to align with broader policy objectives of reducing tax base erosion and profit shifting while promoting fairness, neutrality, and targeted support within the tax system. The Committee supported this proposal noting that a more focused incentive structure will enhance accountability and ensure intended beneficiaries are those generally contributing to the economic objectives of the SEZ framework."
},
{
"id": 1590413,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1590413/?format=api",
"text_counter": 343,
"type": "speech",
"speaker_name": "Molo, UDA",
"speaker_title": "Hon. Kuria Kimani",
"speaker": null,
"content": "Clause 27 proposes to remove the provision in the Income Tax Act that grants a special accelerated investment deduction of up to 100 per cent for capital investments located outside Nairobi and Mombasa. This deduction currently allows businesses such as buildings, machinery, and industrial equipment to claim substantial tax relief on qualifying capital expenditures. However, the Committee expressed concern that removing this incentive could discourage investment in regions outside the two major urban centres. The accelerated deduction has been a deliberate policy tool to promote equitable regional development, industrial decentralisation, and job creation in underserved areas. Eliminating it may inadvertently widen regional disparities, slow down infrastructure expansion, and hinder government’s efforts under BETA that prioritise inclusion in economic growth across all counties."
},
{
"id": 1590414,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1590414/?format=api",
"text_counter": 344,
"type": "speech",
"speaker_name": "Molo, UDA",
"speaker_title": "Hon. Kuria Kimani",
"speaker": null,
"content": "Clause 28 is providing for incentives to companies certified by the Nairobi International Financial Centre Authority. An investment of Ksh3 billion will get 15 per cent preferential income tax rate for the first 10 years and 20 per cent for subsequent 10 years. However, there is a provision that they must have a particular percentage of their senior management being Kenyans. For start-up, they will get a preferential income tax rate of 15 per cent for the first three years and a 20 per cent preferential tax rate for subsequent five years. This provision will lead to increased attraction of foreign direct investments and grow our manufacturing as a percentage of GDP. Most importantly, it will attract fintech companies into this country. We have seen Kenya take lead in fintech business. Even during Covid-19 and post Covid-19, while all other sectors of the economy were contracting, we saw financial services sector continue to grow. We must make Kenya the hub of financial services growth across the globe and across Africa. Notice that I will be tabling a Report on Virtual Assets Providers Bill Next week. That will make Kenya the fourth country in Africa to provide a legal framework for trading in virtual assets. They are cryptos, bitcoins, virtual assets, and blockchain technology. If this honourable House passes the Bill, we will see many of these institutions set up base in Kenya and operate in the rest of Africa. The Committee carefully, reviewed Clause 28(b)(ii) and (iii) that proposes to eliminate the preferential 15 per cent corporate tax rate extended to companies involved in the local assembly of motor vehicles and those undertaking construction of at least 100 residential housing units. After comprehensive consultations with stakeholders and members of the public, the Committee resolved to reject the proposal. The Committee recognised that this lower tax rate is a crucial policy tool in supporting strategic sectors that play a significant role in job creation, industrial growth, and addressing the national housing deficit. The electronic version of the Official Hansard Report is for information purposesonly. A certified version of this Report can be obtained from the Hansard Editor."
},
{
"id": 1590415,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1590415/?format=api",
"text_counter": 345,
"type": "speech",
"speaker_name": "Molo, UDA",
"speaker_title": "Hon. Kuria Kimani",
"speaker": null,
"content": "The Committee further noted that retaining the 15 per cent corporate tax rate is grounded on the principle of strategic economic support that emphasises targeted incentives to sectors with high multiplier effects. These incentives are well aligned with modern industrial policy thinking, such as Ha-Joon Chang’s theory of the developmental state that advocates state-led support to build competitive industries and Michael Porter’s cluster-based approach that promotes growth of sectoral ecosystems through focused policy and fiscal incentives. Supporting local vehicle assembly and affordable housing not only inspires direct employment but also, stimulates ancillary industries, support chains, and service providers. It creates a broader economic impact. Therefore, maintaining this incentive ensures there is policy certainty. It strengthens investor confidence and sustains momentum in key sectors central to Kenya’s industrialisation and the inclusive economic development agenda. Clause 34 proposes to remove the word “taxable” from the relevant provisions, which was considered by the Committee in the context of strengthening tax administration. The Committee observed that this amendment is intended to mandate the issuance of tax invoices for both taxable and exempt supplies, thereby addressing existing challenges in the accurate determination of total turnover. It also aligns with the current requirement under the Electronic Tax Invoice Management System (eTIMS), which mandates invoicing for all transactions, except where specifically exempted under the Tax Procedures Act, Cap 469 B. The Committee supported the proposal, noting that it will enhance transparency, improve record-keeping, and contribute to more effective and consistent tax enforcement across all sectors of the economy. Clauses 36 and 37, which sought to reclassify certain supplies from zero-rated to exempt status were thoroughly, scrutinised by the Committee. The affected items included: Locally assembled and manufactured mobile phones; electric buses, motorcycles, and electric bicycles; lithium-ion and solar batteries; raw materials for the production of fertilisers and animal feeds; and Bioethanol Vapour (BEV) stoves, classified under HS Code 12.00. These are all critical areas in this country’s industrialisation, food security, and green energy transition agendas. The Committee observed that these items had only recently been granted zero-rated status under the Finance Act, 2023, in a deliberate policy shift aimed at incentivising local manufacturing, promoting the adoption of sustainable technologies, and lowering the cost of essential goods and services. Reverting them to exempt status would not only reverse these gains, but also disrupt market confidence, increase input costs, and undermine private sector growth. Particularly in emerging and job-rich sectors such as mobile device assembly and electric mobility. The Committee recommends to retain the zero-rated status of these key inputs. This is well-aligned with the Government’s broader policy objectives under the Bottom-Up Economic Transformation Agenda (BETA) and Vision 2030. These policy frameworks prioritise industrial growth, climate resilience, affordable energy solutions, job creation, and sustainable agriculture. For example, local mobile phone assembly has created thousands of jobs. While the electric mobility sector, including electric buses and bicycles, supports green transport initiatives and offers affordable transport alternatives. Lithium-ion battery production and the uptake of BEV stoves further contribute to environmental sustainability and reduced reliance on fossil fuels. For example, for lithium-ion batteries, Kenya is one of the largest manufacturers of lithium batteries. This allows us to even export to other countries including Tanzania. This has only been made possible through this zero-rating status. As much as we understand the strategy by The National Treasury to try to reduce tax expenditures which have been in excess of Ksh500 billion every year, remember our development budget is partly around Ksh650 billion, whereas our tax expenditure is around Ksh550 billion shillings. This means that our tax expenditure is almost as much as our The electronic version of the Official Hansard Report is for information purposesonly. A certified version of this Report can be obtained from the Hansard Editor."
},
{
"id": 1590416,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1590416/?format=api",
"text_counter": 346,
"type": "speech",
"speaker_name": "Molo, UDA",
"speaker_title": "Hon. Kuria Kimani",
"speaker": null,
"content": "development budget. But in as much as there is need to clean up the First and Second Schedule of the Value Added Tax (VAT) Act on the zero-rated and exempt status, it is also important to realise that we also operate under other protocols across the region. Like the East African Community (EAC) protocol and the African Trade Protocol. If we do not have these incentives in our local market, the African Trade Protocol would enable manufacturers to move to a different country, manufacture there, and we end up importing those products. It is therefore, very important that we are very deliberate to continue with the incentives that support our local manufacturing. Most importantly, we have provided another clause where this abuse of exempt status or zero-rate status will now be punishable. There are administrative measures to make sure that these incentives of zero-rating and exempt status are used properly administratively, rather than punishing a whole sector and making us uncompetitive in the region. Clause 36 proposes subjecting several strategically important goods to the standard 16 per cent VAT rate. However, after careful consideration, the Committee recommends that these goods remain listed under the First Schedule and continue to enjoy VAT-exempt status due to their critical role in advancing key national development priorities. The goods in question include items used in the construction of tourism infrastructure, such as recreational parks and conference centers, and sectors that contribute significantly to foreign exchange earnings and job creation. In 2023 alone, tourism contributed over 10 per cent to the Gross Domestic Product (GDP), and supported more than 1.6 million jobs. Similarly, the exemption for goods used in hospital construction and equipment, especially for specialised hospitals with at least 50 beds, is very crucial in strengthening healthcare infrastructure and in line with our Universal Health Coverage (UHC) agenda. Furthermore, the exemption of aircraft spare parts and tourist transport vehicles aligns with Kenya’s ambition to solidify its status as the aviation hub of the region, and boost high- value tourism. The VAT exemption for inputs used in affordable housing projects directly supports the Government's housing agenda by lowering construction costs and accelerating project delivery for low and middle-income earners. Exempting renewable energy equipment also reinforces Kenya’s commitment to transitioning to clean energy, in line with national climate goals and global sustainability commitments. Additionally, exempting weighing machinery for hospitals ensures that healthcare providers are not burdened with additional costs for critical diagnostic tools. The Committee’s recommendation to preserve VAT exemption for these items reflects a deliberate effort to align fiscal policy with the Government’s overarching development agenda. This will ensure that tax measures promote, not hinder, progress in sectors that are vital for economic transformation and social well-being. Clause 52, which proposes to grant the Kenya Revenue Authority (KRA) broad access to personal data…"
},
{
"id": 1590417,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1590417/?format=api",
"text_counter": 347,
"type": "speech",
"speaker_name": "Hon. Peter Kaluma",
"speaker_title": "The Temporary Speaker",
"speaker": null,
"content": " Order, Hon. Chairman. These are very technical things. Just before you move from Clause 36, you mentioned something about tax expenditure. You are also talking about zero-rating exempt. Could you explain them to Members, because I see you are losing so many Members in terms of the effect thereof."
},
{
"id": 1590418,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1590418/?format=api",
"text_counter": 348,
"type": "scene",
"speaker_name": "",
"speaker_title": "",
"speaker": null,
"content": "(Hon. John Kiarie spoke off the record)"
},
{
"id": 1590419,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1590419/?format=api",
"text_counter": 349,
"type": "speech",
"speaker_name": "Hon. Peter Kaluma",
"speaker_title": "The Temporary Speaker",
"speaker": null,
"content": "Hon. KJ is following. You can proceed."
},
{
"id": 1590420,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1590420/?format=api",
"text_counter": 350,
"type": "speech",
"speaker_name": "Molo, UDA",
"speaker_title": "Hon. Kuria Kimani",
"speaker": null,
"content": " Hon. Temporary Speaker, there are three VAT rates in Kenya. A product can be vatable under the standard rate of 16 per cent, exempt from VAT, or zero-rated. The difference between a zero-rated and exempt product is that, for a zero- rated product the manufacturer is allowed to claim the amount of VAT they spent during input. The electronic version of the Official Hansard Report is for information purposesonly. A certified version of this Report can be obtained from the Hansard Editor."
},
{
"id": 1590421,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1590421/?format=api",
"text_counter": 351,
"type": "speech",
"speaker_name": "Molo, UDA",
"speaker_title": "Hon. Kuria Kimani",
"speaker": null,
"content": "Just to demonstrate, if a manufacturer is manufacturing this bottle of water, there are costs involved in the plastic container and the electricity bill that are vatable. Therefore, the final outcome of this like the water, is vatable. That means that if this product was zero-rated, then the manufacturer is allowed to claim the amount of tax they spent on their inputs. Whereas in exempt, although there is no VAT in an exempt product, they are not allowed to claim the amount of tax they spent as input in manufacturing of that particular item. This is why ideally, a zero-rated product is meant to be cheaper than an exempt or a standard product. However, tax expenditure is when you allow claiming of input VAT, and it means that this is foregone tax by the government. That where your input tax could be higher than your output tax, you should go to KRA and ask for a refund. But there is a challenge with this and that is why you can see a deliberate effort by The National Treasury in trying to clean up the First and the Second Schedule of the VAT Act; which is our zero-rated products and exempt products. The challenge is that we have very many fictitious claims of input VAT. Where we have some entities that employ more accountants than the officers who actually run it. For example, in hospitals you find … I do not want to give an example of a particular institution. That would be to dispatch them. But you have seen institutions that are manufacturing X product but the number of accountants they have in that business is more than anyone else. All they do is process refunds for VAT. Another issue is that the budget that we provide in The National Treasury and through KRA for those refunds is only Ksh5 billion, against a demand of excess of Ksh50 billion at any particular time. That also creates a loophole, because how do you determine who gets refunded and when? The ideal situation in future for the products that we must protect, is probably to introduce a lower VAT rate of maybe around two, three or four per cent, so that we do away with this issue of zero-rating. However, this Bill has now provided for a recourse where Kenya Revenue Authority (KRA) is able to satisfy itself that a particular entity is misusing a product that is supposed to be zero-rated or exempted from Value Added Tax (VAT). In such cases, there is a penalty for it. Another good example is one of the debates we have had even with you, as a Member of our Committee on zero-rating of the transportation of sugarcane in sugar belt areas. This is a very huge cost to these particular areas. When you zero-rate it, you allow them to claim that fuel, for example, used by the tractor. How do you verify that it was used for the transportation of sugarcane? What if that fuel is bought and ends up supporting other activities, but it is said to have been used for transportation of sugarcane? Those are the complications we deal with products which are exempted from VAT. This is what accounts to tax expenditures. I hope I have explained to you, Hon. Temporary Speaker. Clause 52 of the Bill proposes to grant KRA broad access to personal data for tax compliance purposes. This includes access to trade secrets and confidential customer information. The Committee thoroughly scrutinised this provision. After extensive public engagement and consultation with stakeholders, we found that this proposal fails to meet the constitutional standards set under Article 31(c) and (d) of the Constitution of Kenya, which guarantee the right to privacy. The Committee also noted that Section 51 of Data Protection Act sets out clear and limited grounds under which access to personal data may be exempted from certain protections. Furthermore, Section 60 of The Tax Procedures Act already provides the Commissioner or an authorised officer with sufficient powers to obtain necessary information for tax administration, subject to a court-issued warrant. This safeguard strikes a balance between tax enforcement and protection of individuals. The electronic version of the Official Hansard Report is for information purposesonly. A certified version of this Report can be obtained from the Hansard Editor."
}
]
}