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Kenya: US Firms Enjoy Billions in Savings From Ruto Tax Cut

Kenya; US Firms Enjoy Billions in Savings From Ruto Tax Cut (News Central TV)

Two US companies with operations in Kenya have reported significant tax benefits as a result of President William Ruto’s administration’s decision last year to reduce taxes on local branches of foreign companies.

Ormat Technologies Inc, a US company with power generation operations in Kenya, disclosed a tax benefit of $9.4 million (Sh1.49 billion), implying that foreign companies will save billions of shillings as a result of the contentious Finance Act, 2023, which reduced the corporate tax rate for branches from 37.5 percent to 30 percent.

The decision brought the corporate tax rate for foreign companies in line with the rate paid by resident companies.

American Tower Corporation (ATC), based in the United States, also reported tax savings against the backdrop of a public outcry in the region over rising taxes and levies.

“The company applied the applicable changes in the Finance Act in its third quarter [ended September 2023] condensed consolidated financial statements,” said Ormat in a trading update.

“The impact resulting from the reduction of the statutory corporate income tax rate for branches from 37.5 percent to 30 percent was recorded under the income tax (provision) benefit in the amount of approximately $9.4 million.”

The company raised its income tax provision for the nine-month period to September, but revealed that this increase was partially offset by a fresh tax benefit in Kenya.

However, it did not disclose the actual value of the benefit.

“The increase in the income tax provision during the nine months ended September 30, 2023 was partially offset by a benefit in the current year from the application of a tax law change in Kenya,” said ATC.

ATC, through its local subsidiary, ATC Kenya, owns 3,645 telecom towers in the country that it leases to local mobile network providers.

It is unclear the exact number of foreign companies that are operating in Kenya, but data from the Business Registration Service shows 89 have been registered in the current financial year, starting in July.

This means that the Kenya Revenue Authority (KRA) will forgo billions of shillings annually from the tax cut.

However, President Ruto is betting that, at least in the long term, earnings from foreign investments in the country will grow to offset the revenue loss.

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