Investors in the Export Processing Zones (EPZ) will likely find relief in the proposed Tax Procedures Amendment Bill, 2024, which aims to reduce the steep penalties for failing to submit returns.
Currently, EPZ enterprises face a penalty of Sh2,000 per day for late or unsubmitted returns, which adds up quickly and has been a significant financial burden. However, if the proposed bill passes, this daily charge will be replaced by a fixed monthly penalty of Sh20,000, regardless of the period of non-compliance.
The proposed amendment seeks to update the 11th Schedule of the Income Tax Act, where the existing penalty is currently set.
“An export processing zone enterprise that fails to submit a return as required under paragraph 4 of the Eleventh Schedule to the Income Tax Act shall be liable to a penalty of twenty thousand shillings per month for each month or part thereof that the failure continues,” the amendment Bill read in part.
This adjustment is expected to benefit smaller EPZ enterprises struggling to pay accumulating daily penalties.
The amendment also aligns with updates in the Tax Procedures Act, which will introduce additional penalties for late submissions and non-compliance but under more manageable terms.
Historically, the current Sh2,000 daily penalty has been seen as harsh, especially given the challenging economic climate and the need to foster a favourable investment environment in Kenya.
The bill builds on recommendations from the Finance Bill 2024/25, which also suggested changes to the penalty structure to encourage greater compliance without placing an excessive burden on enterprises.
Reducing these penalties could have a wider positive impact on the Kenyan economy. With a friendlier regulatory environment, EPZs become more attractive to foreign investors, potentially increasing foreign direct investment in the country.
By easing the requirements, Kenya hopes to enhance its position as a preferred destination for export-oriented industrial ventures, supporting its long-term industrialization goals.
EPZs have historically been central to Kenya’s economic growth strategy, facilitating export-driven industrial development.
