Tax Incentives Kenya has Adopted in Reducing Carbon Footprints

Kenya is striving to enhance its position as the 6th largest economy in Africa. To support this goal, the journey to establishing the Nairobi International Financial Centre (NIFC) began back in the year 2017. The main objectives of the NIFC are to attract more capital both domestically and internationally, promote the adoption of technology in finance, and facilitate green finance. The significance of green finance cannot be overemphasized as it contributes to building a sustainable economy, leading to long-term stability and prosperity.

Due to growing concerns about global warming, the need for a Carbon Exchange Market is becoming increasingly urgent. A Carbon Market is a platform where companies, government, and individuals can buy and sell permits that allow them to emit a specific amount of carbon dioxide and other greenhouse gasses into the atmosphere. These permits, also known as carbon credits, are limited and can be traded on the market, enabling a reduction of carbon emissions through market mechanisms.

In Kenya, the African Carbon Exchange (ACX) is a platform certified by the Nairobi International Financial Centre (NIFC) and is currently the only carbon exchange market in the country. Some of the companies that have signed up to use the platform include KenGen, Koko Networks, and Mumias, with the aim of reducing their carbon emissions to the atmosphere.

Kenya being the headquarters of United Nations Environmental Programme (UNEP), and in the spirit of reducing Carbon footprint, the Finance Act 2022 introduced a provision to lower the Corporate Income Tax rate to 15% for a period of 10 years before reverting to the standard 30% for companies operating a Carbon Market Exchange or Emission Trading System and certified by the Nairobi International Financial Centre (NIFC) authority. This provision aims to encourage participation in promoting a sustainable environment by reducing greenhouse gasses and carbon dioxide emissions. The tax cut will incentivize companies to reinvest their profits into their businesses, leading to further growth in the industry.

In conclusion, companies looking to engage in Environmental Social and Governance (ESG) initiatives can greatly benefit from this provision and should seize the opportunity. This is a prime chance to improve their brand image by demonstrating a strong commitment to the environment, which will foster stakeholder trust in the long run.

Also Read: Compliance with Tax Invoice Management System (TIMS)