Increasing Access To More Public Goods; A Legal Perspective Of Ppps In Kenya

PPPs

Public Private Partnership in Kenya was commenced by the enactment of the PPP Act of 2013. The said Act was later repealed by a new PPP Act which came into force on the 23rd of December, 2021. PPPs provide a special purpose vehicle allowing the private sector to invest in public infrastructural projects. A good example of a PPP project in Kenya is the Nairobi expressway which is a PPP initiative between the government of Kenya and a private entity from China called China Road and Bridge Corporation (CRBC).

The current PPP Act establishes the legal and institutional framework governing PPPs in Kenya. The Act provides for the participation of the private sector in the financing, construction, development, operation and maintenance of infrastructure or development projects through the PPP model. Before the project is initiated, the contracting parties must first seek consent from the Attorney General as the chief legal advisor to the government. The parties have to notify and seek consent from the PPP Committee as well prior to tendering or cancelling a tender. Among the key PPP procurement methods provided for by the act are direct procurement, privately-initiated proposals, competitive bidding and restrictive bidding.

Pursuant to the Act, and supporting regulations, the contracting authority must be guided by the principles of transparency, cost-effectiveness and equal opportunity. The Act establishes the Directorate of PPPs which is a department under the Treasury responsible for setting and issuance of standard bidding documents to private entities and conducting the procurement process in liaison with the contracting authority. The directorate headed by a Director-General is also responsible for guiding and advising contracting authorities in project structuring, procurement and other tender evaluations among other functions. The PPP Committee is mandated to settle disputes emanating from PPP agreements and tendering processes including the cancellation of PPP tenders.  The committee also formulates policies on PPPs, oversees the implementation of PPP contracts, approves standardized bid documents, approves feasibility studies, approves privately-initiated proposals, approves variation of terms among the negotiating parties and lastly monitors the implementation of the whole PPP legal regime in Kenya. The current PPP Act is investor-friendly by providing a variety of ways in which the PPP models can be initiated in Kenya. The improved PPP legal framework will increase access to public goods without overburdening the county and national government. The private entity gets compensation in numerous ways as highlighted under the Act.

To what extent is the County Government a taxing master?

County governments’ authority to collect business taxes.

The Constitution of Kenya creates a decentralized system of governance and administration. In order to exercise the decentralized powers and duties, county governments are authorized to raise their own revenue. Whereas the national government still collects a significant part of revenue, the Constitution and other laws have outlined the taxes, levies and fees that county governments can collect. Broadly speaking, county governments may impose entertainment taxes, property taxes and any other taxes they are authorized to impose. The taxes, levies, fees and charges target local residents and their businesses.

In the business context, the national government is in charge of functions such as the registration of business entities. On the other hand, county governments can issue and levy charges for licenses such as business permits. The amount of fees charged for a permit depends on the nature of the business, the size of its office and the number of employees.

County governments issue trade licenses for diverse economic activities including distribution services. Manufacturers and distributors are required to pay for distribution licenses in each county where they distribute, offload or supply goods and services.

In addition, county governments are empowered to collect cess fees, also referred to as infrastructure maintenance fees. This is a form of tax charged on fishing and agricultural products as well as extractives such as quarry products as they move across county borders. It is levied by the county from which the goods are produced and is collected at the source or during transportation of the products at designated roads. A transporter is required to produce evidence of paying cues in the county of origin. However, the transporter or trader has to pay market fees to access or sell the goods in the destination market. This is referred to as a market levy.

County governments are also authorized to charge fees on outdoor advertising. For instance, a county government can levy fees for the external branding of motor vehicles. The fees are charged on branded vehicles belonging to a business based in the county or that drive-in or through the county. In enacting laws, counties must follow the Constitution and ensure that the taxes, fees and levies charged will not impact national economic policies and economic activities negatively. Moreover, where a fee is to be charged on a service, the law requires that the fee should not exceed the cost of providing such service.

The Copyrights (Amendment) Act 2021

A Big Win For Artists In Kenya

Kenyan artists now have a big relief after the Copyrights (Amendment) Bill 2021 was signed into law on 4th April 2022. Section 2 of the Act defines ring-back tunes to mean subscription music or a tone that is played by a telecommunication operator to the originator of a call. The Act also contains a new revenue sharing formula between the artists and other stakeholders in the industry. Pursuant to section 30C of the Act, the parties to a ring-back tune are to share the net revenue from the sales of the ring back tunes at different percentages with the artists getting the larger percentage. The premium rate service provider will get a share of 7% while the telecommunication operator is to get 16%. The artist or the copyright holder will get 52 % of the revenues earned. 

The new law establishes the National Rights Registry as an office within the copyrights board to perform duties such as digital registration of rights holders and digital registration of copyrights works among others. The registry is in the form of an online portal that will allow any person to access the copyrighted works upon payment of the prescribed fees whereby such amount is channeled to the rights holder. According to the promoter of the Bill which has become a law, Hon Gladys Wanga, the main objective of the law is to amend the Copyright Act of 2001 to provide a fair formula for sharing revenue from ring back tunes between the artists who are the copyrights holders and the telecommunication companies such as Safaricom and Airtel. Pursuant to the new law, the artist is made the main beneficiary by getting a greater share of revenues collected. The Act also repeals provisions on takedown notice in case of copyright infringement incidences, removes the ambiguity in the role of internet service providers, provides for application for injunctions to cure copyright infringements and align the Copyrights Act with other existing legal remedies. The changes introduced by this new law will stabilize the creative industry and increase income for the artists hence boosting the economy at large. Artists will utilize the improved income to set up various businesses and platforms such as established music records and labels that will sign in other upcoming artists on a contractual basis. The overall effect will be a source of employment for young and talented youths who are currently jobless.

Transforming Ownership Of Sectional Property In Kenya

Sectional Property Act 2020

The repealed Sectional Property Act of 1987 was unpopular to developers because of its harsh provisions favouring the property’s purchaser. Before the enactment of the Sectional Properties Act of 2020, developers of off-plan townhouses and sectional units used to register the specific units under long term leases which amounted to ownership. The current law is appealing and attractive to the developers due to modification of harsh provisions such as the one that required the property buyers to deposit the initial amount with a trustee instead of paying it directly to the developer.

The Sectional Properties Act, 2020 applies in respect of land held on freehold title or on leasehold title where the unexpired residue of the term is not less than twenty-one (21) years, and there is an intention to confer ownership. The law requires registration of sectional plans, which ought to describe two or more units and be presented to the Land Registrar.

The new law protects the purchaser by establishing a corporation that allows the unit owners to manage the apartment, flat or townhouses. The Act provides that a sectional plan should be accompanied by an application for registration of a corporation and a list of the owners of the units, which can be updated from time to time. Once a sectional plan is registered, the registrar is required to close the register of the mother title of the land where the sectional property sits and open a separate register for each unit described in the sectional plan.

The registrar will then issue a certificate of title if the property is freehold or a certificate of lease if the property is leasehold in respect of each unit of the sectional plan. The owners will then acquire shares in the formed corporation to own the common spaces as tenants in common in shares proportional to the unit ownership. The above law streamlines owning sectional properties in Kenya. Consequently, more investors will venture into the real estate business as developers of sectional units, improving the economy and making it easy to own homes in Kenya. The unit owners will also be able to take a loan using the certificate of ownership as security, hence boosting financial inclusion in the country.

End Of Proxies In Company Ownership In Kenya

Brief Overview and Impact on Businesses in Kenya

The Statute Law (Miscellaneous Amendment Act) 2019 amended the Companies Act 2015 to require all companies to introduce a register of beneficial owners. To effect the amendment, the Government enacted the Companies (Beneficial Ownership Information) Regulations, 2020 as subsidiary legislation to the Companies Act on 18 February 2020. The Business Registration Service (BRS) issued a public notice notifying all officers of companies and authorized persons that the beneficial ownership E-Register had been operationalized with effect from 13 October 2020.

Every company in Kenya must now lodge a register of beneficial owners with the Registrar of Companies. A beneficial owner is defined in the Regulations as any natural person who ultimately owns or controls a legal person or whose behalf transactions are made. A beneficial owner can also be a person who directly or indirectly holds at least 10% of the issued shares in a company. It could also be a person who possesses the direct or indirect power to appoint or remove a director of the company or indirectly or directly exercises significant influence or control; and directly or indirectly exercises a minimum of 10% of the voting rights in a company. The register of beneficial owners should contain particulars of each beneficial owner, including the date when a natural person became a beneficial owner, the date on which a person ceased to be a beneficial owner, and any other relevant details the registrar may require.

The implications of the Regulations on the business environment in Kenya are that Companies in Kenya will now have more significant administrative burdens and costs associated with keeping a register of members and creating and maintaining a record of beneficial owners. The drafting of legal documents relating to ownership, such as shareholder agreements and, in particular, reserved matters, will need to consider concentrated shareholding structures and the definition of control. The operationalization of the E-Register is likely to impact a significant amount of ongoing transactions by tying other services offered on the BRS to beneficial ownership compliance. The positive impact of these regulations is that the established E-Register of beneficial owners will help create transparency in ownership of companies in Kenya hence reducing corruption through proxies, money laundering, and other syndicates committed behind the corporate veil. The regulation is still new; hence more time is needed to assess the implications of the disclosure obligation on companies.

Tapping Opportunities Of Kenyan Labour Export To The Middle East

Government set to initiate reforms in labour laws and policies to protect migrant workers

Saudi Arabia, United Arab Emirates, and Qatar are among the largest importers of labour globally. A thousand migrant workers leave the country annually to seek opportunities as domestic service workers in Saudi Arabia due to the Kafala system which makes the process affordable. The female migrant workers do not incur migration costs since they migrate on a sponsored visa and air ticket funded by the employer. The kafala system is however disadvantageous on the employees since upon arrival they are held in slavery-like conditions.

In 2020, the diaspora remittances surpassed the income obtained from the traditional sources such export of agricultural products. Therefore the government saw the opportunity in exporting labour to the gulf countries and more so Saudi Arabia which has bilateral agreement with Kenya on labour matters. The government through the ministry of labour has introduced several reforms through policy frameworks while other reforms are underway in bills of parliament and draft policies that are yet to be concluded. Among the key reforms introduced to reduce distress from ladies traveling to Saudi Arabia, is compulsory pre-departure training conducted by licensed home care training institutions in Conjunction with National Industrial Training Institute (NITA). The changes were introduced amid the increased mistreatment and death rate of domestic service workers.

To ensure that ladies can always be saved from distressed conditions and be airlifted back to the country through the assistance of the embassy, the Ministry of labour through the National Employment Authority (NEA) requires all migrant workers going to Saudi Arabia and other GCC member states to pass through registered and licensed Employment Agencies which are listed on NEA website. The CS for labour, Simon Chelugui has asserted that migrant workers stuck in Saudi Arabia and other Gulf Countries were sneaked out of the country by unscrupulous employment agents. Among the key reforms to come in the future is the establishment of a safe house for distressed migrant workers, provision of social welfare packages such as medical cover, overtime pay and leave days for the migrant workers. Philippines is the largest exporter of Domestic service labour in the Middle East due to its improved labour laws and policies that protect its migrant workers. Kenya is reviewing its labour laws and policies progressively towards achieve such as status.

The Game-Changing Legislation In The Digital Lending Sector

Digital lenders have been on the spot since their inception into the banking and finance industry due to indulgence in unscrupulous business practices. Some of the unfair trade practices the Digital lenders are accused of engaging in are predatory lending tactics, exorbitant interest rates, sharing and misuse of customer data in the name of ‘debt shaming’ among others. The above-mentioned misdeeds violate the constitutional rights of the consumers especially the rights under Article 46 on consumer protection and right to privacy under Article 31 of the Constitution of Kenya 2010. Digital lenders have also constantly violated the provisions of the Competition Act, Data Protection Act, and the Consumer Protection Act hence a need to tame their practices and bring sanity into the digital lending space.

The Central Bank of Kenya (Amendment) Act of 2021 assented to on 7th December 2021 is game-changing legislation that will bring the digital lending space under the ambit of Central Bank of Kenya (CBK). Initially, the CBK was only licensing Banks through the Banking Act, Regulations and CBK prudential guidelines. The other Deposit taking financial institutions such as Microfinance Institutions are regulated by CBK through the Microfinance Act while Deposit taking Saccos are regulated by Sacco Societies Regulatory Authority (SASRA) through the Sacco Societies Act. Digital lenders are non-deposit taking financial institutions lending money to clients without taking deposits. Aside from their ugly side, they have the good side which is helping SMEs operate their businesses with ease through expedient and instant loans.

 The operational freedom that Digital lenders have enjoyed previously is the cause of major concerns raised necessitating legislation of this new Act. Perhaps the CBK had granted them a test and learn period to wait for the loopholes to manifest themselves before sealing them immediately as they have done. The CBK Amendment Act provides a sound regulatory framework to digital credit providers. The Act gives the CBK powers to make regulations to operationalize the Act, issue licenses to digital lenders, supervise, suspend, and revoke licenses of digital credit providers who do not conform to the operational standards. Among the key operational standards that Act sets are registration requirements, management requirements, credit information sharing, and reporting requirements. With the above new changes, SMEs will operate better with more trust in the sector and protection of their rights hence boosting trade in the country due to increased financial inclusion

The Impact Of Electioneering Period To The Economy

Kenya will be going into polls in 7 months’ time hence there is a feeling of anxiety on who will be the next head of state and government. The uncertainties that come with the campaign period and the aftermath of the voting day impact negatively the country’s economy. The country is already experiencing economic growth slow down since most investors are not assured of peace and political stability. The worry is as a result of repeated violence occurring after each general electioneering period.

Electoral laws and the electoral justice system of a country plays a crucial role in having free, fair, transparent and credible elections. The constitution and the same laws ensure a peaceful transition of leadership from one regime to another. Among the key electoral laws that we have in Kenya are the Constitution of Kenya 2010, Elections Act, Elections Offences Act, IEBC Act, Political Parties Act, Elections Campaign Financing Act, Leadership and Integrity Act, and others.

The system of governance in Kenya is Presidential system while the electoral system is a majoritarian system where the winner takes it all. The above electoral system is said to be the major cause of violence after each election cycle because the losers feel left out in the new government formation. The violence and fracas that crown the end of the electioneering period is considered the main cause of economic slow-down. In addition, the other consequent reasons are reduced taxes, increased short-term cash oriented expenditure to popularize the incumbent candidates and postponed crucial decisions that affect the economy.

Reduced borrowing from financial institutions resulting to slow credit growth is another reason. Reduced borrowing and lending is attributed to massive economic projects slow down by industrialists and businessmen. The project developers usually pause the initiation of new mega projects to wait for political temperatures to cool down and return to normalcy after voting and taking over of leadership by the new regime. The financiers remain adamant to issue long-term loans since any unforeseen destruction may happen to the immovable properties charged to them as securities for the loans. The last reason for the economic slowdown during the electioneering period is increased inflation due to a lot of cash in circulation chasing over limited stock of goods. The above mentioned laws are meant to facilitate expedient and smooth transition of governance and avert more harm to the economy.

Tapping Opportunities Of Kenyan Labour Export To The Middle East

Government set to initiate reforms in labour laws and policies to protect migrant workers

Saudi Arabia, United Arab Emirates, and Qatar are among the largest importers of labour globally. A thousand migrant workers leave the country annually to seek opportunities as domestic service workers in Saudi Arabia due to the Kafala system which makes the process affordable. The female migrant workers do not incur migration costs since they migrate on a sponsored visa and air ticket funded by the employer. The kafala system is however disadvantageous on the employees since upon arrival they are held in slavery-like conditions.

In 2020, the diaspora remittances surpassed the income obtained from the traditional sources such export of agricultural products. Therefore the government saw the opportunity in exporting labour to the gulf countries and more so Saudi Arabia which has bilateral agreement with Kenya on labour matters. The government through the ministry of labour has introduced several reforms through policy frameworks while other reforms are underway in bills of parliament and draft policies that are yet to be concluded. Among the key reforms introduced to reduce distress from ladies traveling to Saudi Arabia, is compulsory pre-departure training conducted by licensed home care training institutions in Conjunction with National Industrial Training Institute (NITA). The changes were introduced amid the increased mistreatment and death rate of domestic service workers.

To ensure that ladies can always be saved from distressed conditions and be airlifted back to the country through the assistance of the embassy, the Ministry of labour through the National Employment Authority (NEA) requires all migrant workers going to Saudi Arabia and other GCC member states to pass through registered and licensed Employment Agencies which are listed on NEA website. The CS for labour, Simon Chelugui has asserted that migrant workers stuck in Saudi Arabia and other Gulf Countries were sneaked out of the country by unscrupulous employment agents. Among the key reforms to come in the future is the establishment of a safe house for distressed migrant workers, provision of social welfare packages such as medical cover, overtime pay and leave days for the migrant workers. Philippines is the largest exporter of Domestic service labour in the Middle East due to its improved labour laws and policies that protect its migrant workers. Kenya is reviewing its labour laws and policies progressively towards achieve such as status.

The Minimum Tax Burden Is No More

The Constitutionality of Minimum tax provision

In a Constitutional Petition filed early this year, The High Court in Machakos declared section 12D of the Income Tax Act unconstitutional and hence null and void. Section 12D had introduced Minimum Tax as a blanket target on all taxpaying business entities at a rate of 1% on net sales regardless of whether they made losses or profits. Justice George V. Odunga while delivering the judgement on 20th September 2021 noted that the Minimum tax provision was in contravention of Article 201 (b) (i) of the Constitution of Kenya 2010 for subjecting taxpayers to double taxation hence punitive in nature. The Kenya Revenue Authority (KRA) had banked on the introduced new tax to widen its tax base. The court however noted that when the tax collector chose to widen its net for a bigger catch did not care about the effect its decision will have on Small Scale Businesses which are currently in perennial losses due to the abysmal economy caused by the covid-19 pandemic.  Justice Odunga stated that;

“The minimum tax has the potential of not only subjecting the people to double taxation but also unfairly targeting people whose businesses for whatever reason are in a loss-making position to pay taxes from their capital rather than profits.”

The KRA wanted to utilize the Minimum tax to capture treacherous business entities that were avoiding taxes through the declaration of constant losses. The above tax system is however discriminatory especially on entities making losses since they will have to tax their capital as opposed to profits. The court further noted that a tax system that reduces the capital base falls short of the values of an optimal tax system.

Economists, financial experts and associations such as Retail Trade Association of Kenya (RETRAK), Kenya Association of Manufacturers (KAM), Kenya Private Sector Alliance (KEPSA), Deloitte, Price Waterhouse Coopers (PWC) and Kenya Bankers Association (KBA) had earlier on opposed the 2020 amendments to the Income Tax Act introducing Minimum tax due to its punitive nature on businesses with low-profit margins and high capital turnover. Firms in the category of fast-moving consumer goods (FMCG) have a reason to smile since they were the worst hit businesses by the new changes in the Income Tax regime due to their low-profit margins and high capital. Business entities can now operate without fear of reducing their capital to pay tax.