Nairobi — Kenya has been asked to do away with tax privileges, if it is to compete with other East African Community member states in attracting foreign investors.

A study released on Thursday said the country must abolish tax exemptions, holidays and other forms of special treatment, which have been its key selling point to potential foreign investors, for it to challenge its EAC neighbours Uganda, Tanzania, Rwanda and Burundi.

"Their abolition looks counterproductive but the presence or lack of corporate tax is not the sole reason why serious foreign investors choose to set up a business in a given country," said Steve Okello of PricewaterhouseCoopers Kenya.

Speaking during the launch of the study, which was carried out by the World Bank and PWC, Mr Okello said investors look at issues like state of governance, property rights, legislative issues like commercial courts and human capital presence.

The country has been extending privileges such tax holidays of up to 10 years to investors, especially in the Export Processing Zones, firms listing at the Nairobi Stock Exchange and importers of factory machinery.

By abolishing the privileges, the country will not only achieve equal treatment of taxpayers, but also reduce the time it takes to comply with the various tax obligations.

"Unlike Uganda and Tanzania where it is only a book entry, in some instances in Kenya you have to pay the tax even if you are (tax) exempted and then claim for a refund later," said Mr Okello.

According to the World Bank and PWC study, which was launched at the Kenyatta International Conference Centre, in Kenya it takes the longest time -- 417 hours -- to comply with tax obligations.

This is more than the African Union's 307 hours and world's 286 averages.

A factor of the consumption tax (VAT), which takes 300 hours to comply with, the country's time is way above her fellow EAC members states in whose jurisdiction it takes less than 200 hours to meet tax obligations.

And to meet the tax obligations, the study says taxpayers have to make 41 payments compared to Burundi's 32 payments. It is only better than Tanzania's 48 payments.

The African Union and world averages are 37 and 31 payments respectively.

The study, Paying Taxes 2010: An African Perspective, also called on the country to widen the tax net and reduce the tax rate, streamline tax administration, introduce taxpayer self-assessment, as well as consolidate and update tax legislation.

"But the situation has improved greatly, following the reforms instituted in this year, including online tax filing and payment measures," Mr Rajesh Shah, a PWC Kenya partner, said.