16 Sept 2019
KENYA: 30% Electricity Rebate for Manufacturers
The Kenyan Ministry of Energy gazetted the criteria for determining the electricity expenses rebate, due under the country’s Finance Act 2018 in Legal Notice 132 of 2019. The Act introduced a 30% electricity expense rebate allowable against manufacturers’ taxable profits, in addition to the normal electricity expense deduction. Although the rebate was applicable from January 2019, it was subject to conditions to be set out by the Ministry of Energy, which have now been released.
A key purpose of the rebate is to mitigate the impact of Kenya’s high electricity costs, which make locally manufactured goods less competitive and discourage foreign investment. This reflects the government’s commitment to support the manufacturing sector, as one of the pillars of its ‘Big Four Agenda’. The rebate criteria, therefore, aim to reward growing manufacturers by using the key performance indicators (KPIs) of annual increases in electricity consumption, capital investment, and sales revenue. These variables then define the Actual Overall Performance (AOP) used to calculate the rebate entitlement.
To phase in the scheme, 20% of the electricity cost will be automatically allowable for rebate in the first year, with the remaining 10% being determined by the weighted KPIs. In the years thereafter, it will be determined solely by KPIs.
Once fully operational, the rebate will be calculated on the AOP percentage. In practice, this means a minimum of 10% growth for all KPIs is required to claim the full 30% rebate.
To apply for the rebate, the manufacturer must provide supporting electricity bills for the year, company accounts for the period, and VAT returns for the financial period and/or customs entries for export sales. A valid tax compliance certificate, quarterly financial reports submitted to the Kenya Revenue Authority, along with a baseline report certified by an external auditor and submitted to the Ministry of Energy as a self-declaration form will also be required. The Cabinet Secretary may also request the Kenya Revenue Authority to conduct an audit and evaluate the rebate in certain circumstances.
The rebates will be backdated to June this year, which means manufacturers will be qualified for a tax cut on their electricity bill in the 12 months to June of next year. Starting from July 2020, manufacturers will then have to comply fully with the requirements set by the government to continue enjoying the rebate.