Category: Kenya

Two American businesses operating in Kenya have stated that they have benefited greatly from lower taxes for foreign companies’ local branches last year, thanks to a decision made by President William Ruto’s administration.

Ormat Technologies Inc, a US company that has power generation operations in Kenya, disclosed a tax benefit of $9.4 million (Sh1.49 billion), suggesting that foreign companies will make billions of shillings in savings from the controversial Finance Act, 2023 that reduced the corporate tax rate for the branches from 37.5 percent to 30 percent.

The ruling brought foreign corporations’ corporate tax rates into line with those of domestic ones.

American Tower Corporation (ATC), a US-based tower company, also disclosed tax savings against the backdrop of a local public backlash against growing taxes and levies.

“The company applied the applicable changes in the Finance Act in its third quarter [ended September 2023] condensed consolidated financial statements,” said Ormat in a trading update.
“An approximate $9.4 million benefit was recorded under income tax (provision) benefit as a result of the statutory corporate income tax rate for branches being reduced from 37.5 percent to 30 percent.”

The business disclosed that a new tax benefit in Kenya somewhat offset the increase in its income tax provision for the nine months ending in September.
It did not, however, reveal the benefit’s true value.

“The increase in the income tax provision during the nine months ended September 30, 2023 was…partially offset by a benefit in the current year from the application of a tax law change in Kenya,” said ATC.

3,645 telecom towers are owned by ATC and leased to regional mobile network providers in the nation through its local subsidiary ATC Kenya.
Although the precise number of foreign businesses operating in Kenya is unknown, data from the Business Registration Service indicates that 89 were registered in the current fiscal year, which began in July.

This implies that the tax cut will result in billions of shillings of lost revenue each year for the Kenya Revenue Authority (KRA).

However, President Ruto is wagering that, at least over time, profits from overseas investments will grow to offset the revenue loss.

Credit: Brian Ambani

Kenya’s outstanding sovereign debts, or Eurobonds, will cost the country more than Sh1 trillion to pay off due to the sharp depreciation of the Kenyan shilling since the securities were issued.

Kenya’s outstanding Eurobonds at issuance were valued at Sh697.7 billion, but due to the depreciation of the local currency alone, they have since increased to Sh1.117 trillion, according to an analysis of the debt trend.

This mimics the dangers associated with taking on foreign debt, which exposes the nation to refinancing risks when the obligations mature.

Last year, 2023, the National Treasury held public hearings from the 13th to the 15th of December on the FY 2024/25 Budget Proposals and Medium-Term Budget. Among the key speakers were the Treasury Cabinet Secretary and Permanent Secretary. Here is a rundown of the key highlights.

[this content is credited to Mwango Capital]

Revenues and Expenditure: Total revenues, excluding appropriations-in-aid, are expected to be at KES 3.4T, equivalent to 19.1% of GDP, while ordinary revenues are estimated at KES 2.96T, or 16.4% of GDP. Gross expenditure has been projected to be KES 4.2T, equivalent to 23.3% of GDP. Recurrent and development expenditure has been estimated at KES 2.9T and KES 881.3B, equivalent to 16% and 4.9% of GDP, respectively.

Fiscal Deficit: The deficit is expected to be in the sub 4.0% region, settling at 3.9% of GDP in FY 2024/2025 from 5.5% in FY 2023/24. The net financing earmarked to be raised domestically and externally has been estimated at KES 377.4B and KES 326.2B, equivalent to 2.1% and 1.8% of GDP, respectively.

Zero-Based Budgeting: The National Treasury has requested ministries, departments, and agencies to submit financial requirements through a costing tool that ensures zero-based budgeting. Unlike traditional budgeting, zero-based budgeting involves the creation of budget vote heads from scratch without referring to previous actual spending levels, and the move is aimed at containing public spending. 

Pending Bills: The gross amount of funds owed to suppliers, merchants, and contractors by the national and county governments between June 2005 and June 2022 amounts to KES 640B, and the Pending Bills Verification Committee approved by the cabinet is currently auditing the bills as part of steps in the lead up to the resolution and the eventual settlement.

Lurking Risks: The cabinet secretary for the national treasury Prof. Njuguna Ndung’u cited risks to the fiscal space and financing of the budget on account of tightening liquidity conditions. This cements his earlier position when he pointed out that Kenya was going to stay out of the international capital markets in FY 2023/2024 on account of higher interest rates.

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