The Finance Bill, 2025, introduces a graduated preferential tax regime for entities certified by the Nairobi International Financial Centre Authority.
These firms will benefit from a corporate tax rate of 15 per cent for the first 10 years and 20 per cent for the following 10. Startups receive even more favourable terms: 15 per cent for three years, followed by 20 per cent for four.
However, we must understand that, in pursuing economic development, countries often face a delicate balancing act: how to stimulate growth and investment while maintaining fiscal discipline.
The Bill exemplifies this challenge, particularly through its provisions aimed at promoting Kenya as a premium destination for investments.
While some critics have identified what appears to be a fiscal contradiction, these measures may represent a calculated investment in Kenya's economic future rather than a policy inconsistency.
Kenya's foreign direct investment performance over the past five years presents a concerning picture with several high-profile international companies either scaling back operations or exiting the Kenyan market entirely.
Companies such as Cargill, PnG, Shoprite and most recently, several manufacturing entities, have closed their operations, citing challenging business environments, high operating costs and regulatory complexity.
Each closure has resulted in hundreds, sometimes thousands, of job losses, exacerbating unemployment challenges, particularly among youth.
Against this backdrop, the provisions in the Finance Bill must be viewed not as luxury concessions but as necessary interventions to reverse a dangerous trend.
At first glance, these tax concessions might seem contradictory to concurrent budget cuts and fiscal consolidation efforts.
However, this approach reflects a fundamental principle of strategic economic development: sometimes you must spend money to make money.
Additionally, these incentives are not handed out indiscriminately; they are tied to substantial commitments, including a minimum investment of Sh3 billion within the first three years. These provisions represent Kenya's investment in its future as a regional financial hub.
This investment takes the form of foregone immediate tax revenue in exchange for attracting substantial foreign direct investment with a Sh3 billion threshold that ensures only serious investors with significant capital will qualify.
In addition, there is an opportunity to expand the tax base through ancillary business activities and employment growth.
Lastly, building financial services infrastructure that benefits the broader economy. Similarly, Kenya's approach must be viewed in the context of global competition for investment capital.
Financial centres worldwide, from Singapore to Dubai to Mauritius all of which offer preferential terms to attract businesses and Kigali and Johannesburg in South Africa.
Kenya is not operating in isolation but competing in a global marketplace where investment flows to jurisdictions offering the most attractive conditions. It, therefore, risks being overlooked as international firms seek growth opportunities in emerging markets.
The concerns regarding these provisions aren't without merit. The preferential rates do create a disparity between these entities and domestic businesses.
The investment thresholds effectively limit benefits to well-capitalised investors, and without robust anti-avoidance provisions where those arrangements are put in place purely to reduce tax, there's a risk of domestic capital being restructured through such vehicles without generating additional economic activity.
These concerns demand attention through a gradual harmonisation of tax rates as the financial centres mature and secondly, targeted support programmes for domestic businesses to enhance competitiveness.
This isn't a fiscal contradiction but a fiscal strategy because a calculated decision to sacrifice some immediate revenue to build a foundation for sustained economic expansion. The key to success lies not in abandoning the strategy but in implementing it with appropriate safeguards and regular assessment.
As Kenya navigates its economic future, the wisdom of this approach will ultimately be judged not by short-term revenue impacts but by the long-term transformation of Nairobi into a thriving financial hub that generates sustainable growth, employment and prosperity for Kenyans. Sometimes, to reap abundantly, one must first be willing to sow generously.
