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
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