Operators and developers of special economic zones (SEZ) face a 12-fold increase in fines for failing to keep proper records of their activities as they enjoy special tax and incentives.
Amendments to the Special Economic Zones Act that were done in December via the Business Laws Amendment Act 2024, have seen the fine for improper reporting go up to Sh5 million from Sh300,000 previously.
The SEZ operators and developers are required to maintain records of their activities, employment statistics and business operations that will provide the Kenya Special Economic Zones Authority (Seza) with data on the performance of the businesses in the zones, and keep an eye on prohibited activities within the SEZ.
“A special economic zone developer or a special economic zone operator who fails to maintain adequate and proper accounts and other records as required by this section commits an offence and is liable on conviction to a fine not exceeding Sh5 million or to imprisonment for a term not exceeding six months, or both,” reads the Business Laws Amendment Act.
In addition to the enhanced penalty, the new amendments have also expanded the mandate of Seza, allowing it to recommend to the Trade Cabinet Secretary the cancellation of a licence of a SEZ enterprise or developer when they violate any applicable law.
Previously, Seza could only recommend such action when the breaches touched on the SEZ Act, the East African Community Customs Management Act and the Value Added Tax Act.
The SEZ operators enjoy a raft of exemptions from tax laws at both national and county levels, special access to work permits or visas for foreign nationals up to 20 percent of full-time employees, easier repatriation of profits, faster project approval and licensing as well as exemption from rent and tenancy controls.
These fiscal and administrative incentives cost the government millions in foregone revenue every year, hence the move to tighten the oversight of their activities and raise the penalty for those flouting reporting rules.
Disclosures by the Kenya Revenue Authority (KRA) in Parliament last year indicated that the special economic zones were exempted from paying Sh1.9 billion in taxes and levies in the period between 2015 and 2023. The tax exemptions ranged from as low as Sh2.35 million to Sh604 million annually.
These incentives are meant to woo foreign investors who would otherwise set up in competing economies, with the ultimate goal of increasing Kenya’s exports and creating jobs.
The Business Laws Amendment Act has, however, capped the period for which the enterprises in the SEZ can enjoy the tax benefits to 10 years. Previously, the enterprises were allowed to pay corporate income tax at 10 percent for 10 years, rising to 15 percent for the next 15 years.
The government has authorised and gazetted 37 special economic zones in the country, out of which 14 are operational.
Some of the gazetted public special economic zones include theDongo Kundu, Naivasha, Konza Technopolis, Mombasa Industrial Park, Sagana Agro-Industrial City (Saic) and Riwa in Homa Bay.
Private economic zones include Tatu City, Two Rivers International Finance and Innovation Centre (Trific), Northlands, East Africa Free Zone and Mt Kipipiri Golf & Resort in Nyandarua.
