Kenya has introduced special incentives to attract more investments to the country, but they could sound the death knell for export processing zones.

Investors have expressed concern over controlled market access and the creation of special economic zones, whose investors will enjoy unlimited access to local and international markets.

Kenya plans to set up the special economic zones in key urban areas as part of its Vision 2030 goal to diversify manufacturing activities and create employment.

President Uhuru Kenyatta has signed into law the Finance Bill 2015, which spells out key measures to revamp activities in the special economic zones. The zones are currently undergoing a pilot programme in Mombasa, Lamu and Kisumu.

Through the Act, the government exempted all supplies of goods and services to companies and developers in special economic zones from VAT and reduced the corporate tax rate for enterprises, developers and operators to 10 per cent for the first 10 years and 15 per cent for the next 10 years.

Kenya also retained 150 per cent investment deduction allowance  for investments of Ksh200 million ($1.86 million) or more outside the cities of Nairobi, Mombasa and Kisumu, which had been abolished by the Cabinet Secretary for the National Treasury Henry Rotich in the 2015/2016 budget.

The business community expressed fears that investors at the EPZ would pull out due to what they say is skewed treatment by the government.

Investors at EPZs are entitled to, among other things, a 10 year-corporate tax holiday and 25 per cent tax thereafter; a 10-year withholding tax holiday, stamp duty exemption, 100 per cent investment deduction on initial investment applied over 20 years and VAT exemption on industrial inputs.

But the EPZ investors who have been pushing for the enlargement of the domestic market to include the East African Community are restricted to selling only 20 per cent of their produce to the Kenyan market while 80 per cent is exported.

“You can’t have different incentives for EPZs and special economic zones. Investors at the EPZ have their own negotiated markets and the danger is that they are likely to move out,” Laban Onditi, vice national chairman of the Kenya National Chamber of Commerce and Industry told The EastAfrican.

According to Mr Onditi, tax incentives are not enough to boost activities in the economic zones unless infrastructural challenges and the overall business environment in the country is improved.

It is hoped that the certainty around tax exemption will encourage the setting up of industries in the specially designated zones, which should spur economic growth.