EDITORIAL: Handle scrapping of fiscal incentives wisely

The proposal by the Treasury to scrap an array of fiscal incentives available to industrial park investors is one that Parliament needs to handle with a lot of care.

As long as the State intends to create a thriving manufacturing sector that generates jobs and boosts economic growth, it must be ready to put its money where its mouth is. Lest we forget, industrial parks are a fairly new concept in Kenya. They were intended to be an attractive conclave in which small and large investments enjoy an array of fiscal incentives, enabling them to generate multiple jobs and boost exports over a specified tax holiday period.

Going by global best practice, countries reserve industrial parks for light manufacturing rather heavy industries as the idea is to encourage innovation and open new frontiers for businesses. Perhaps that’s what has informed the government’s latest tax moves.

Through the Finance Bill, 2020, the National Treasury wants industrial park investors building premises on more than 100 acres of land outside Nairobi and Mombasa to start paying import declaration fees on raw materials. The changes also seek to strike out the Cabinet Secretary’s power to exempt the companies from paying tax on raw materials used in the construction of premises at the industrial parks. More importantly, the Bill seeks to take away the Treasury’s power to exempt goods worth less than Sh200 million imported by park investors “in furtherance of public interest or to promote investment”.

After extending an array of tax reliefs to enable firms and individuals wade through the Covid-19 global pandemic, the Treasury was always going to target every low-hanging fruit in efforts to boost tax collection.

Granted, existing economic incentives such as tax holidays being extended to export processing zones have yielded mixed results and strengthened resolve of Kenya Revenue Authority that has always wanted them scrapped.

However, in a world where investors are spoilt for choice, the government must tread carefully on this one. Industrial parks are largely untried in Kenya, and there is a possibility that the original tax incentives were the main reason why about 100 investors have lined up for space in the yet to be built Naivasha site, for instance.

In short, the tax incentives are of critical importance. All the State needs to do is to tie extending the incentives to specific performance metrics such as number of jobs created, amount of local material used and the level of exports generated.