Thursday, March 24, 2016

Export Processing Zones in Kenya

Kenya’s Export Processing Zones (EPZs) have failed to meet expectations on wealth and job creation, the World Bank (WB) says in a new report as the government prepares to reform the model which has lagged behind what Asian and Latin American countries offered.

Incentives provided through export processing zones and special economic zones should be compatible with World Trade Organization specifically the Subsidies and Countervailing Measures Agreement including timelines on export promotion instruments; otherwise host countries may face retaliatory actions by importing countries.

According to the Kenya Export Processing Zones Act Article 9 replicated below these are the regulations that apply to EPZs in Kenya.

Subject to subsection (1) and without prejudice to any other written law, the export processing zone enterprises, export processing zone developers and the export processing zone operators shall be granted the following exemptions—

(a) exemption from registration under the Value Added Tax Act;
(b) exemption from the payment of excise duties as specified in the Customs and Excise Act (Cap. 472);
(c) exemption from the payment of income tax as specified in the Income Tax Act (Cap. 470) for the first ten years from the date of first sale as an export processing zone enterprise, except that the income tax rate shall be limited to twenty-five percent for the ten years following the expiry of the exemption granted under this paragraph;
(d) exemption from the payment of withholding tax on dividends and other payments made to non-residents during the period that the export processing zone enterprise is exempted from payment of income tax under paragraph (c);
(e) exemption from stamp duties on the execution of any instruments relating to the business activities of an export processing zone enterprise;
(f) exemption from quotas or other restrictions or prohibitions on import or export trade with the exception of trade in firearms, military equipment or other illegal goods;
(g) exemption from exchange controls on payments for—
(i) receipts of export processing zone exports;
(ii) payments for raw materials, intermediate goods, tools, and spares, supplies, construction equipment and construction materials, capital equipment, office equipment, repatriation of royalties, management fees, technology transfer fees, profits, dividends, advertising expenses, inspection fees for quality control, debt service and any other legitimate business expenses; and
(iii) capital transactions, except on capital funds raised form Kenya residents subject to exchange control in which case remittance of dividends, profits, debt service and any other returns to such capital invested shall be subject to the Exchange Control Act (Cap. 113);
(h) exemptions from rent or tenancy controls; and
(i) any other exemptions as may be granted by the Minister for the time being responsible for finance by notice in the Gazette.

See related article here on the Kenyan experience on EPZs.

Meanwhile Mauritius can be considered one of the most successful stories in the context of the African continent on EPZs. In the past Mauritius has grown on average by 6 per cent, relying on several growth engines which include export processing zone (EPZ), the sugar sector, tourism and the emerging financial services sector. The EPZ can be credited with diversifying the Mauritian economy from the traditional sugar sector and leading to the industrialization of the country.

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