Kenya Urged to Reform Taxes to Unlock Investment
The World Bank is calling on Kenya to make targeted tax and regulatory changes that could unlock nearly Sh195 billion in new investments and create about 80,000 jobs across key sectors of the economy.
The lender has proposed several measures, including introducing a value-added tax (VAT) deferment scheme for fruit-processing equipment and removing overlapping regulatory requirements affecting locally manufactured medical products.
The World Bank says delays in VAT refunds by the National Treasury are putting pressure on businesses in the horticulture industry. Fruit processors are forced to tie up working capital while waiting for refunds, making it harder for them to invest in new equipment and expand their operations.
Under a proposed VAT deferment system, eligible fruit-processing companies would be allowed to postpone payment of import VAT on qualifying capital equipment instead of paying the tax immediately when the machinery enters the country.
The World Bank estimates that reforms targeting the fruit-processing value chain could unlock Sh21.7 billion in investment and create about 36,000 jobs. The lender also wants Kenya to address overlapping requirements imposed on manufacturers of medical consumables by the Pharmacy and Poisons Board and the Kenya Bureau of Standards.
It says easing these regulatory challenges could attract Sh103.8 billion in investment into local production of medical supplies such as surgical masks, disposable gloves, cotton swabs, hospital beds and surgical scalpel handles. The medical manufacturing sector could also generate about 33,000 jobs, according to the World Bank.
Tourism is another area identified as having significant investment potential. The lender estimates that targeted reforms in the coastal tourism sector could attract Sh46.7 billion in investment and create about 14,000 jobs.
The proposed changes are aimed at reducing the financial and regulatory obstacles that businesses face when setting up or expanding operations in Kenya. The World Bank says making it easier for companies to access capital, import essential equipment and navigate regulatory requirements would encourage more private-sector investment. The proposed reforms therefore place tax administration and regulatory efficiency at the center of efforts to unlock private investment and strengthen economic growth.