Kenya mulls bold move to cut corporate tax to tap more investments

Kenya is considering a bold move to cut corporate tax rates in an effort to attract more investments into the country. The Kenyan government's proposal to reduce the corporate tax rate from 30% to 25% is aimed at luring investors and boosting the economy. Ronny Chokka, a Research Analyst at Genghis Capital Investment Bank, shed light on the economic implications and strategic objectives of this tax reduction initiative. The move is part of the medium-term revenue strategy outlined by the National Treasury to enhance the fiscal space and increase the country's revenue-to-GDP ratio. Currently, Kenya's revenue-to-GDP ratio stands at 14.1%, falling short of the sustainable target of 17% and the Vision 2030 ratio target of 25%. By lowering the corporate tax rate, the government aims to attract foreign direct investment flows and increase fixed capital formation, leading to the creation of new jobs and increased output over the medium term. The initiative also seeks to boost compliance rates by encouraging more firms to pay their taxes, with a target of increasing the compliance rate from 70% to 90% by 2030. While some may question the sustainability of this tax reduction, Chokka explained that lowering tax rates is an expansionary policy that can expand the economy, enhance the revenue basket, and encourage informal companies to formalize their operations. The reduction in tax rates is seen as a strategic move to position Kenya as an attractive investment hub in East Africa. The medium-term revenue strategy also includes scrapping preferential tax rates offered to specific sectors, aiming to create a more equitable tax system across various industries. As the government works towards achieving a tax revenue to GDP ratio of 20% by 2027 and 25% by 2030, the implementation of the tax reduction proposal will be phased in on a fiscal year basis. The timeline for the full implementation of the tax reduction plan aligns with the medium-term plan running from 2023 to 2027. Overall, the move to cut corporate tax rates in Kenya signals a proactive effort to stimulate economic growth, attract investments, and improve the country's revenue collection.