Capital markets regulator wants the Treasury to give a tax pardon to family-owned firms which choose to sell some of their stakes to the public through the Nairobi Securities Exchange (NSE).
The proposal, which is still at a stakeholder consultation stage before it can be presented to Treasury secretary Henry Rotich for consideration, is aimed at encouraging the country's dominant SMEs to list on the NSE's Growth and Enterprise Market Segment (GEMS).
The Capital Markets Authority (CMA) says only firms which remain listed for five years should qualify for the amnesty.
The GEMS segment, launched in July 2013 with relaxed listing rules, has struggled to attract new companies since June 2016.
"The Government to provide for tax amnesty for companies that list on the GEMS Board provided that the entity makes full disclosure of its assets and liabilities, undertakes to pay all its future due taxes and remains listed for a period of 5 years," the CMA says in proposal for consideration in Finance Bill 2019.
Only Flame Tree Group Holdings - a profitable fast-moving consumer goods (FMCG) firm with operations in five regional countries and Dubai - remains on a sound financial ground among the five companies which listed on the GEMs.
Investors in shoe vendor Nairobi Business Ventures, real estate developer Home Afrika and investment firm Kurwitu Ventures have significantly been diluted, while Atlas African Industries has collapsed.
The CMA lists improved corporate governance and financial reporting which will ease tax compliance as justification for the tax pardon call.
"Tax amnesty is part of a general strategy for expanding SME access to capital, hence widening and deepening the economy's tax bracket," the authority adds.
"Moreover, by the time the tax breaks expire, firms will have hopefully grown into larger entities that will contribute more to government revenues."