Kenya: Tax Exemptions for Kengen Out in New Law Changes

19 October 2020

Power producer KenGen is braced for increased taxation running into hundreds of millions of shillings after the Finance Act 2020 took away tax exemptions on electricity plants and introduced new ones.

The move will end the Nairobi Securities Exchange-listed firm's previous practice of paying the taxes and later claiming refund, with the amounts boosting its "other income" when they are received from Kenya Revenue Authority.

KenGen, for instance, received a Sh391 million refund in the year ended June 2019 after claiming Railway Development Levy (RDL) on equipment imported and used to build the 280-megawatt Olkaria geothermal power plant.

"The Finance Act, 2020 was assented to and came into effect on June 30. The said Act has several implications on the company, key among them being introduction of minimum tax of one per cent of turnover payable on a monthly basis," the company's CEO Rebecca Miano wrote in the latest annual report.

VAT exemption

"... stringent requirements on treatment and recognition of input VAT, withdrawal of VAT exemption (which was previously applicable on some of the company's inputs for wind and solar projects) and withdrawal of the exemptions on Import Declaration Feed and Railway Development Levy (which were previously applicable to goods imported for geothermal projects)."

KenGen had Sh88.9 billion worth of pending power plants in the review period and will now pay all the relevant taxes on the projects.

The power plants will be completed over the next few years.

The RDL is currently levied at a rate of between 1.5 per cent and two per cent of the value of imported goods depending on whether they are raw materials or finished products.

Only currency notes and coins imported by the Central Bank of Kenya and equipment, machinery and motor vehicles for the official use by the Kenya Defence Forces and National Police Service continue to be exempt from RDL.

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