How firm got Sh9.7b tax waiver for Expressway job

Monday, March 20th, 2023 00:00 | By
Nairobi Expressway. PHOTO/Courtesy
Nairobi Expressway. PHOTO/Courtesy

Chinese firms China Road and Bridge Corporation (CRBC) and its subsidiary Moja Expressway enjoyed a tax reprieve of Sh9.7 billion during the construction of the 27-kilometre Nairobi Expressway.

The deal between Kenya and the Chinese contractors was part of attempts to lower the expressway’s construction costs, a key factor in determining the duration of paying the current dollar-denominated toll fees, before the final take-over by Kenya.

The move which was revealed by the Finance and National Planning Committee, was however not realised, or benefits passed to Kenyans since the cost still surged gradually in phases, making it among the most expensive road project in Kenya.

Governments often offer tax reliefs through various means including pension reliefs, tax rebates, or reduction of duty importations to strategic companies to encourage a particular economic activity.

Taxes account for the highest cost component for most businesses and projects in Kenya.

Cost reduction deal

“The intention was to reduce the cost of construction of the Expressway which never happened. There seemed to have been a skewed way of giving these waivers particularly to Chinese companies at the expenses of local companies,” the finance committee led by Molo Member of Parliament (MP) Kuria Kimani told the Business Hub on the side-lines of a meeting before the Budget and Appropriation Committee (BAC).

The Expressway’s budget was supposed to be fully financed by CRBC through a Public-Private Partnership (PPP) arrangement at an initial cost of $559 million (about Sh65 billion by then) in October 2020. However, the amount ballooned to Sh97 billion in the last cost hikes in May 2022 after the government splashed an extra Sh9 billion for the rehabilitation of sections of the old Mombasa Road damaged by the contractor.

The expressway has eased a perpetual gridlock that had been constant along Mombasa Road but at a painful financial burden on hiked cost, soaring toll fees, and damage fines.

The current government has been silent on its position regarding the charges formula, fines and the financing agreement for the Nairobi Expressway.

While Moja Expressway has been fining motorists for months now, there are concerns regarding its legality and whether the government previously okayed the road management framework, which should stipulate things like fines and current toll charges.

Moja Expressway is currently collecting toll charges for some 27 years to recoup billions of shillings gobbled up by the project, with the profit estimated at Sh107 billion ($921 million).

Weakening shilling

The charges are dollar-based to cushion the operator from exchange rate losses, implying that the toll fees are increasing amid the weakening of the shilling, which is currently trading at a printed rate of Sh129 against the dollar.

CRBC and Moja Expressway are among a host of Chinese firms that are currently under the scrutiny of the Kenya Revenue Authority (KRA) over waivers, following an internal shakeup that recently led to the suspension of tax exemption and refunds.

More on Business