Experts: Cut corporate tax to spur Kenya's economic growth

Economic experts have termed Kenya’s corporate income tax punitive, citing Singapore as a suitable example of how a lower rate can spur foreign direct investment. 

They regretted that Kenya had not taken advantage of a perfect storm against the prevailing macroeconomics by implementing the Medium-Term Revenue Strategy 2024/25-2026/27. 

In the strategy prepared by the National Treasury, the government details how it will reduce the corporate income tax (CIT) from 30 per cent to 25 per cent. 

This is yet to be effected. However, looking at Kenya’s competitiveness against its neighbours, the experts argue a drop in this rate would give the country an edge. Macred Ochieng, a finance and risk management expert, says there are countries that have used a lower CIT as a tool to win more investors across the globe. 

“A typical example is Singapore. Singapore has a CIT rate of 17 per cent. Now that explains the immense growth they have been able to achieve because it becomes a destination that multinational enterprises look at as a favourable tax environment for business,” he said. 

“What stops Kenya from reducing our CIT from 30 per cent to something, let’s say, 25 or even 20 per cent?” 

Economic opportunity

Ochieng was part of a discussion on the Finance Bill 2026 held at KCA University, where experts met to deliberate the document against the prevailing economic situation.

He said Kenya is a signatory to the United Nations Convention on taxation and also the Organisation for Economic Co-operation and Development (OECD), which has set a minimum of 15 per cent CIT for multinationals whose revenue exceeds $873.4 million (Sh113.2 billion). Ochieng said slashing the CIT would unlock immense economic opportunity for the country even while, in the short run, the country may collect less from businesses as more multinationals set up. 

He explained that this strategy would still work even when they do not serve the Kenyan market by using it as a hub for production for the rest of the world. 

“When you do that, instead of having just 100 multinationals, we will have 2,000 who pay a corporate tax at 15 per cent compared to just a handful at 30 per cent,” he says. Participants also discussed the Medium-Term Revenue Strategy 2024/25-2026/27, which dictates the country’s economic policies for the period. 

It is in this document that the government shows the willingness to slash the CIT to 25 per cent. It notes that a study by the Kenya Revenue Authority (KRA) in 2022 revealed that the CIT gap is high and on an upward trend, rising from 25.5 per cent in 2018, to 26.7 per cent in 2019 and 32.2 per cent in 2020.

This gap is attributed to low compliance and tax expenditures, among other factors. 

In order to narrow the gap, the government proposed a review of the corporate tax rate.  The document notes that Kenya’s CIT rate is 30 per cent compared to the world average of 23 per cent and the African average of 29 per cent. 

Additionally, studies have shown that high rates of corporate income tax discourage foreign direct investments and encourage investors to lobby for lower rates or tax exemptions. 

“Further, high rates contribute to increased tax planning and reduced compliance by taxpayers, which, in the case of Kenya, has contributed to a decline in income tax as a share of GDP. To address the issue, the government will reduce the corporate rate of tax from the current 30 per cent to 25 percent over the strategy period,” says the National Treasury in the document. 

Robert Kariuki, a tax and business advisor, reckons it is a mixed bag for the government in terms of achievement. He says the country missed a golden opportunity to take advantage of it. “If you look at the African average for corporate tax, it is 27 per cent, so why are we at 30 per cent? Value-added-tax (VAT) is at 13.4 per cent. Why are we at 16 per cent?” he posed. 

Dr Patrick Muinde, an economist who was also part of the discussion, noted that Kenya is no longer being viewed as a single market but through the lens of the East African Community (EAC). As such, an investor needs to be truly convinced – through the economic policies of the government – that this is the ideal market to sink their capital.  “How do these policies – whether the Finance Bill or the Appropriation Bill – speak to that investor to choose Kenya and not Tanzania?” he posed.