TOR – Regulating Tax Incentives in Kenya for Enhanced Domestic Resource Mobilization

About Oxfam Kenya

Since 1963, Oxfam in Kenya has worked with partners in long-term development programs, humanitarian assistance, peace and conflict resolution programs and actively engaged in campaigning for better governance and equitable access to services. Oxfam in Kenya envisages a transformed Kenyan society in which each individual, regardless of gender, religion, ethnicity, or social standing, is able to access basic services, and fully participates in decision-making processes on issues that affect their lives and can be heard. Read more about Oxfam from https://kenya.oxfam.org/.

The Governance and Accountability Pillar at Oxfam in Kenya supports a movement of citizenship in Kenya that is informed and active on tax mobilization, budget allocation and spending. We are also bold and brave in challenging taxation policies and practices and grounding our influencing work on research and evidence.

About the Project: Strengthening Progressive Domestic Resource Mobilisation and Accountability Stakeholders to Improve the Social Contract in Africa

This Project aims to support civil society coalitions to play a stronger role as “Accountability Stakeholders” on Domestic Resource Mobilization. These efforts aim to lift people out of poverty by strengthening transparency, accountability and citizen participation in public finance and public resource decision making. The overall objective of the project is increased progressive Domestic Revenue Mobilization through strengthened accountability partners, equitable revenue raising measures, meaningful public participation in public finance matters and inclusive, pro-poor budget making processes. Read more information about the Project here: https://kenya.oxfam.org/what-we-do/governance-and-accountability.

1. Background

Governments are motivated to deliver public services and programs for their citizens. To achieve this, they primarily depend on two main funding streams: foreign aid and domestic resource mobilization to fund these services. In the quest to deliver public projects, Governments impose taxes primarily to generate revenue necessary for funding public services and infrastructure, such as healthcare, education, and transportation systems. This revenue is crucial for maintaining the functionality of the state and ensuring the provision of essential services to citizens.

Tax Incentives are measures that provide for a more favourable tax treatment of certain activities or sectors compared to what is granted to the general industry. Governments in Africa offer tax incentives primarily to attract foreign direct investment (FDI) and stimulate economic growth in a competitive global market. Majority of countries have tax incentives provided for in their tax laws. These incentives, which may include tax holidays, reduced rates, and investment allowances, are designed to enhance the profitability of investments in key sectors such as manufacturing, agriculture, and technology. By creating a more favorable investment climate, governments aim to counteract the challenges posed by political and economic instability that often deter investors. Furthermore, tax incentives are seen as a strategic tool to diversify economies that have historically relied on extractive industries, promoting industrialization and job creation.

1. Problem Statement

The Kenyan government has previously offered tax incentives to bolster various programs and projects while encouraging private sector investment in key sectors. These incentives usually serve different purposes such as to stimulate sectoral growth, encourage trade and investment as well as help make a country seem more attractive in the global market. In Kenya, these incentives include tax holidays, Capital Investment Allowances on Industrial Buildings, Investment Deductions, accelerated depreciation, special economic zones, investment subsidies, reductions in tax rates and indirect tax incentives like input VAT claims. While tax incentives are a mechanism to attract foreign direct investment, however, this leads to increased unhealthy competition between developing countries and regional partners where policy makers look to match, or even surpass, their regional neighbours by offering more generous concessions.

The Kenya National Tax Policy (2023) recognizes that revenue collection, as a share of Gross Domestic Product (GDP) continues to decline due to various factors including increase in tax incentives. In 2021, Kenya’s tax expenditure accounted for 2.61% of its GDP, slightly below the African average of 2.9%.[1] Despite tax increases over time, the government consistently fails to meet its revenue collection targets. The Q3 Economic and Budget Review Report[2] for 2024 showed that the total revenue collection fell short of the projected target by Ksh. 208.1 billion.

Therefore, actual benefits of these tax incentives on the economy remain questionable, highlighting the necessity for an assessment of their effectiveness, usefulness and implications

1. General objective and specific objectives of the study

General Objective

To evaluate the effectiveness and impact of existing tax incentives in Kenya.

Specific Objectives

1. Identify and analyse the various types of tax incentives in Kenya and the legal frameworks governing them.
2. Establish the key sectors benefiting from tax incentives and their impact on sectoral growth and investment.
3. Evaluate the fiscal cost of tax incentives, including revenue losses and implications for public finance.
4. Assess the level of transparency and accountability in the design and implementation of tax incentives.
5. Provide actionable recommendations for policy reform to enhance transparency, equity, and accountability.
6. Scope of the study and approach and methods, establishing the basic methodological requirements

A mix of qualitative and quantitative approaches comprising of structured desk reviews, Key Informant Interviews, stakeholder’s engagement and a poster pitch that well presents data in simple and graphical way using visual aids, to quickly communicate trends, patterns, and relationships within the data.

This study will use both quantitative and qualitative data collected from both primary and secondary sources. The data will be robust, verifiable, well-referenced and collected using ethical practices. The consultant will propose a method of analysis and subsequent presentation. The report should be presented in a logical, strategic, reader friendly and simple language.

1. Consultancy Team: Qualifications and Skills needed

At the minimum, the consultant(s) must possess the following:

1. At least a Masters in Law, Economics, Tax Administration, Public Policy, Development Finance, Business administration or any other related discipline in Development studies.
2. Demonstrated academic qualifications or experience in law, economics, political science, tax administration or any other related discipline in Social Science.
3. Experience in evidence-based Policy Research and Analysis, Development Research and Policy, Public Policy Analysis and Economic Policy Analysis.
4. Experience in working on Economics, Finance, Tax Policy or Law in both public and private sector.
5. Demonstrate a good understanding of the Kenyan context particularly economic and social context with practical working experience in the country.
6. Be conversant with current fiscal and economic laws, policies and practice in Kenya.
7. Practical application of cross cutting themes like gender mainstreaming, M&E, Advocacy.
8. Excellent analytical and report writing skills.
9. Experience of effective interaction with local and national institutions, both government and private sector as well as International Institutions on economic, tax policy, public finance, international finance and related areas.

Ability to engage and convene diverse stakeholders from private sector, government, policy makers, and non-governmental organisations.

7. Schedule, budget, logistics and deliverables.

The consultancy will be for a maximum of 50 working days from the date of signing of the contract. The Schedule is as follows:

Activities

Timeline

Inception Report which should detail the following:

• The consultant’s clear understanding of the proposed assignment
• Methodology to be used for the assignment.
• Data types, collection plans and analytical approach
• Data collection tools
• Overall work plan for the assignment

Within 10 days after signing the contract

First draft

10 working days after submission of the Inception Report

1 multi-stakeholder consultative workshop

10 days after submission of the first draft

Revised Second Draft

5 days after the consultative workshop

Presentation for Internal Peer Review

5 days after submission of revised second draft

Final Draft

5 days after internal peer review

1 launch and dissemination workshop

5 days after submission of the final draft

7. Key Deliverables

The successful consultant(s) will be expected to deliver the following:

• An inception report outlining approach to the assignment, timeframe, deliverables, etc.
• Questionnaires and Tools for interviews and discussions with resource persons at Oxfam and stakeholders
• A first draft
• 1 stakeholder consultative workshop
• A revised draft after stakeholder consultation
• A final report.
• A finalized poster pitch summarizing the findings.
• 1 launch/dissemination workshop

8. Study responsibilities and management arrangements

The consultant shall work under the direct supervision of the Global Inequality Influencing Programme Officer.

9. Dissemination strategy, plan and responsibilities for sharing and using the findings.

The research and analysis shall be used by Oxfam in Kenya and partners to better understand the dynamics tax incentives and overall impact on tax revenue mobilization in Kenya to enable the development of policy, frameworks and laws regulating tax incentives.

10. Process of the selection of the team and expectations for study proposal

Firms or Consultant(s) who meet the requirements should submit a expression of interest (Maximum 15 pages), which should include the following:

• A suitability statement (1 page), including commitment to availability for the entire assignment.
• A technical proposal (max 5 pages – excluding CVs) detailing: consultants’ relevant experience, the methodology and their approach to the assignment, including what literature will be reviewed, what organisations and persons will be interviewed and a draft outline of the report.
• A financial proposal outlining the exact number of days per deliverable and daily rate.
• A copy of the CV of the consultant/s (max 4 pages for each consultant) who will be assigned to conduct the work including two referees to whom similar services were provided.
• A sample of relevant products or publications or hyperlinks were available.
• The analysis will be used to influence the relevant policies, legislations, tax policies, frameworks on tax and the Government of Kenya.

[1] National Treasury and Economic Planning. (2023). National Tax Policy. Sessional Paper No 2 of 2023. Retrieved from: https://www.treasury.go.ke/wp-content/uploads/2024/05/7.05.-2024-National-Tax-Policy.pdf

[2] See the National Treasury and Economic Planning (2024) Quarterly economic and Budgetary Review for quarter 3 of the financial year 2023/2024 period ending March 31, 2024.

How to apply

Please send applications to KPConsultancyServices@oxfam.org.uk by 31st January 2025.