Doing Business in Kenya
Doing Business in Kenya

Doing Business in Kenya

The mainstay of the Kenyan economy is agriculture. For a long time, tea has been the highest contributor to the Gross Domestic Product (GDP) followed by horticultural produce and coffee. In recent years, tourism and horticulture are becoming more prominent players in export earnings.

Doing Business in Kenya
Doing Business in Kenya

Europeans introduced cash crop farming, industries, and modern commerce, while Asians focused on commerce. Africans only provided labour to these foreigners. Due to unfavourable policies or financial inability the Africans’ contribution to the economy was minimal.

After Independence, the government started Africanising many sectors of the economy with new policies and direct assistance from foreign countries. This had a positive impact and many Africans managed to start or acquire existing businesses which they operated with a measure of success. Every business that was taken over was negotiated and fully paid for.

Kenya has a variety for industries to processing, manufacture or assembling different products. Most of the manufacturing field is dominated by the micro-enterprise industry .In her short economic history, Kenya has been a capitalist state. However, for some time, the government’s participation and control of the economy washeavily felt in the economy. The result of this was discouraging and consequently

the government has decided to liberalise the economy and privatise its parastatals. Most of the hurdles that hinder the free market system are being removed. Both local and foreign investors are being encouraged to participate in the economy. The government offers various incentives to the investors, some of them through taxation.

Investment opportunities abound in Kenya. These opportunities range from infrastructure, tourism, agro-business, manufacturing and various services like education, health and finance. The economy has been under a recession (one of its worst) for some years now although in the period preceeding independence, between 1963 and 1973, the GPD growth rate was stable at anaverage of 6.3% per annum. The 1990’s decade has seen the economy at itsworst, and later registering negative growth rate. The economy enjoyed its highest boom in 1977-78 when the growth was over 8%.

Like all economies of the world, the sen/ice industry in Kenya is the fastest growing, registering over 2% growth against other sectors which have less than one percent growth rate. Though virtually all sectors of the economy are active, there is a big room for competition. In 1966, for instance, 70% of the commercial businesses were owned by non-Kenyans.

Africans were still in subsistence activities instead of the market oriented economy. High concentration of these commercial activities was in towns. Though the government was eager to transfer the economy to the Kenyans and especially the Africans, there were several obstacles that hindered this policy. Many Africans were uneducated and lacked necessary skills to run some rather sophisticated businesses.

Rural areas producing agricultural products were inaccessible or costly to access due to poor infrastructure in the rural areas. Moreover, the cash crops, as usual, attracted fluctuating prices in the world markets. Due to few exports, mainly of raw agricultural produce, the country constantly experienced unfavourable termsof trade, a problem that has persisted up to today.

To achieve the goal of transferring the economy to the Africans withoutrobbing the foreign investors of their investments, the government set up a number of parastatals to assist enterprising Africans raise capital and/or improve their management skills. Some of these institutions are still in operationalthough others are in the process of being privatised. They include:

Development Finance Corporation of Kenya (DFCK), lndustrial Credit

Development Corporation (ICDC), Kenya Commercial Bank (KCB), lndustrial

(IDB),Development Bank Kenya lndustrial Research Development Institute

(KIRDI) and other government owned firms. Others were specifically set up to

promote African’s participation in the commercial sector. They included the

Kenya National Trading Corporation (KNTC), KENATCO and Kenya National

Chamber of Commerce and Industry (KNCCI). The Agricultural Finance

Corporation was established to help finance farmers in buying land and

necessary farming equipment. lt is the government’s desire to assist locals

participate in the economy that partly led to the establishment of many

parastatals in the country. By 1967, the government had managed to Kenyanise

the civil service up to 90%.

The government has removed most of the

obstacles that hinder a free market

system and now offers various incentives

to the investors especially in taxation.



The slowdown in economic growth reflects

capacity under-utilization and declining new


The following factors have

contributed to the economic

slowdown in Kenya

Prolonged draught that led to reduced supply of

water resources and electricity for economic

activities. The draught also affected agriculture and

the related activities.

Poor state of roads (little maintenance).

Inefficient telecommunications, railways,

energy and port services.

Inefficient delivery of public sen/ices by the

central and local governments.

Mismanagement of farmers’ institutions.

High interest rates (which affect cost of

borrowing for investment in domestic


Uncertainty and loss of investor confidence

caused by insecurity.


The government has implemented various economic

reforms aimed at eliminating the structural constraints on

economic activity, improving governance and creating an

enabling environment for investment and economic growth.

These measures include:

1. Restructuring and strengthening the Kenya

Anti Corruption Authority (KACA) and the

Central Tender Board (CTB).

  1. Restructuring a number of public enterprises

in telecommunications, energy and banking

in order to improve their performance.

  1. Establishment of the Kenya Roads Board

(KRB) in July, 2000 in order to improve efficiency

in roads rehabilitation and maintenance.

  1. Reforming the civil service with a view

to improving efficiency of the central government

(now in progress).

  1. Government internal security agencies are being

strengthened to improve their capacity to contain crime.

  1. The government has put in place tighter controls to

ensure transparent and more productive use of

government financial resources.

in addition, the government remains committed to

accelerating privatization of public enterprises as

outlined in the Interim Poverty Reduction Strategy

Paper (IPRSP) for the financial year 2000/1 through


Source: (For causes and remedies) – CBK, 2000 Annual

Report (July 1999-June 2000) and CBK Monthly Economic

Report, November 2000.


The country produces a wide variety

of agricultural products due to varied

climate, soils and landscape of the

country. The crops are both for local

and foreign markets. They include

coffee, tea, pyrethrum, wheat, maize,

beans, peas, potatoes, sugarcane,

various nuts, millet, cotton, sisal,

fruits, rice, various vegetables, flowers,

and a variety of livestock. Much of the

farming is however, for subsistence.

Mineral wealth

Kenya has a number of minerals:

Soda ash, limestone, salt, diatomite,

and fluospar. There are also small

amounts of gold and silver available in

the country.


Kenya has a well established network

of infrastructure. However, part of this

system needs some maintenance

and expansion. Most of the electric

power is water sourced which leaves

the power generation vulnerable to

draught. The power sector is being

restructured and expanded and is

There is a proposal to liberalize them. With the

government divesting substantially in

telecommunication, the sector is now

going through expansion,

modernization and competition. Ports

and airports are well developed in

Kenya. Transportation by air, road,

rail or water is available.


The Kenyan currency is the

shilling. There are currency coins

for the following denominations:

50 cts, one shilling, five, ten and

twenty shillings.

There are, in addition, tender

notes for shillings: five, ten,

twenty, fifty, one hundred, two

hundred, five hundred and one

thousand. The notes and

currencies with Moi’s and

Kenyatta’s portraits are in


Working hours

The Public sector has a five day

week, Monday to Friday. Offices

open at 8.00 a. m. and closing at

5.00 p.m. with a lunch break of 1 .00

p.m. – 2.00 p.m.

In the private sector, a

number of firms open half-day on

Saturdays. However, grocery

shops, hotels and restaurants and

most of the Jua Kali sector are

open all the time or close for only

a few hours.

Banks in major towns open

between 9.00 a.m. and 3.00 p. m.

from Monday to Friday. On the first

and last Saturday of the month they

open between 9.00 a. m. and 11.00

  1. m. in Nairobi.

ln the rural areas, banks are

open on week days and in addition,

on every Saturday morning hours.


Kenya has a fairly well developed

manufacturing sector. The service

industry is also well established. The

opening up of the economy,

competition, ease of capital and

technology flow and available foreign

markets are expected to influence the

expansion and modernisation of the

existing industries.

Some manufacturing industries

are involved in processing agricultural

produce. Horticultural farming is also

prominent with the local and foreign

markets and the transport sector is

quite vibrant with private sector

dominance (with a few government taxis

e.g., KENATCO).

The service industry, previously

dominated by hotel (tourism) business,

now includes health, education, ports

and airports, personal care, finance and

the fast emerging information

technology (lT) service sector.

The main manufactured goods

include processed or semi processed

agricultural goods, tea, coffee, tobacco

and sugar, cement, textiles, leather

products, refined oils, iron and steel,

vehicle assembly, chemicals,

pharmaceuticals, soda ash, sugar,

wood products and animal products

such as milk and fish. Other products

include canned fruits like beers, wines,

soft drinks, and mineral water.

Most of the industries are small

with the Unilever Group of Companies

being the most prominent single

company. These industries hardly

satisfy the local demand, let alone the

readily available markets in East African

and the Comesa region. Even though

it may appear like a certain

manufacturer is satisfying the local

market, competition is always

necessaiy as the newcomer can offer

variety price or quality.

Mobile users witnessed an

amazing price reduction and

improvement of service in the telephone

industry when Kencell entered into the

market previously under the monopoly

of Telkom (fixed line) and Safaricom

(mobile phone) monopolised.

The alternative to investing in a

manufacturing plant is to import goods

and compete with the local ones as long

as the customers can see an

advantage of buying from you. Some

people have made money by going into

dealership of popular brands produced

outside the country or manufacturing

them under licence.

Setting up of industries is

encouraged in Kenya in order to reduce

the high level of unemployment and

transfer technology to the local people.

The government also earns

income and manufactured goods are

made available to Kenyans. Foreign

exchange is earned when these goods

are sold in the foreign markets.


With a population of 28.7million

people, Kenya offers a good local

market for products and services.

However, most of the population is in

the category of the low income

earners. Kenyans are hardworking

and will take full advantage of the

improving economy arising from the

current economic reforms in the

country. Neighbouring Uganda and

Tanzania with a combined population

of over 87.4 million people, are good

markets for Kenyan goods. Their

economies are currently doing well.

COMESA is another market for

Kenya. This is a free trade area for

members countries aaand is based

on reciprocal agreement. The main

Kenyan exports are (in the order of

value): tea, coffee, horticultural

produce and petroleum products.

Imports include industrial supplies,

machinery, fuels and lubricants,

consumer goods, food and beverages.

Outside Africa, Europe is the

main importer of Kenyan products.

Other leading markets are Uganda,

Tanzania, and the Far East.


Kenya does not in any way fall short

of trained and experienced manpower.

With the wide industrial base in the

country, many Kenyans have had a

chance to work in various industries,

thereby gaining valuable skills and

experience. A variety of government

and private sector training colleges

have for years trained many Kenyans

in various courses.

Skills abound in all areas,

including in the information

technology. Any missing skills can

be developed locally because the

basic requirements are available.

There is something special with

Kenya and its people. Many foreign

dignitaries who have visited Kenya

have expressed their impression of the

potential in the country. Kenyans also

feel that their economy can do better

than it is currently doing going by the

past performance. Kenyans are not

used to depending on handouts. They

are a people committed to hard work.

With the government now creating an

enabling environment, the economy is

set to improve.

Business name

Types of business organisations

  1. a) Sole proprietorship – This is registered for one

business proprietor, though the family and

employees can help manage it.

  1. b) Partnership — The business is registered for two

or morejoint owners.

  1. c) Limited company — There are private and public

limited companies.

A limited company is more complicated in registration than a sole proprietorship

or a partnership. A private limited company has 2 to 50 shareholders whereas

a public company has unlimited number of shareholders.

Registering a sole proprietorship or a partnership is easy. All you need is

to choose a business name and applyto the Registrar-General for registration.

But for a limited company you need the services of a lawyer to register it.

Upon receipt of your application for registration of a business name, the

Registrar conducts a search in his registry and records. He must be satisfied

that the name, in his opinion, is not undesirable.

Undesirable names

Every business name submitted is not always accepted for registration are


For a name to be accepted for registration, it must not:

  1. a) Appear misleading or confusing regarding the intended nature of


b) Appear very close to an already existing business name. if it is

registered erroneously, the existing company may file an

injunction, and the new business will be forced to change its

name. Alternatively, the Registrar-General may order the newly

registered business to change its name immediately.

c) Suggest connection with a government department or local


d) Have names with the words; “lnternational”, “National” and

“Commonwealth”, except in special circumstances.

e) include: Cooperative, Building Society, Bank, Banking or Trust

unless valid reasons or circumstances of the business justify it.

f) include a proper name which is not a surname of the owner or

directors, unless for very valid reasons.

g) Include the name of a registered trademark unless with written

consent of the trade mark owner.

The search

After the search, the Registrar-General will give consent for registration or if it

is denied another name will have to be chosen and submitted.

An application for the registration of a business name is made to the Registrar

of Companies through a formal letter. It is better to deliver the application letter

by hand at the Sheria House, second floor, Nairobi, and pay the fee of KShs 50

at the counter while handing it in. After about two weeks, the applicant should

go back with the receipt to check whether the search is completed.

If the name has been accepted, you will be given back your application letter

endorsed, “accepted” and official forms to complete. The business registration

forms will require the following particulars:

  1. a) The business name.
  2. b) The general nature of business.
  3. c) The registered office or place of doing business. (This requires

full physical and postal address of the business).

Date of the commencement of business.

Full name of the owner or partners, their professions or occupation

and relation with one another and their academic and professional

qualifications. The proprietor or each partner will sign the form.

The completed forms are submitted to the Registrar-General with

a registration fee of KShs 600 for sole proprietor and partnerships.

You will also attach copies of national identity cards or, for a

foreigner, copies of a work permit and a passport. After another

two weeks or so the certificate will be available for collection at

no extra fee.

Limited company

A lawyer’s assistance and guidance is needed to complete the forms for a

limited company. He will, in addition, draw up a memorandum and articles of

association for the company. The directors subscribe and pay for initial shares

in the company. The lawyer registers the document and pays the stamp duty

for the documents which now become legal deeds. The legal fee depends on

the value of shares in the company and other costs. The shareholders pay for

the stamp duty, the fee for name search, and the registration fee. For a small

company, the total cost can be as little as ten thousand shillings or less.


After registration, there are no legal procedures on the sole proprietorships or

partnerships. However, limited companies must file annual returns with the

Registrar-General. lf this is not done over a long period of time, the Registrar-

General may strike the name of the company off the register.

The owner(s) of the business may wish to de-register the business. This

can be done by writing to the Registrar-General and paying a fee of KShs 100.

A copy of business registration certificate or certificate of incorporation of a

business must be displayed in the company premises for the perusal of any

interested parties including government officers.

The name of the business should appear prominently on the outside of

the premises where the business is housed. it should also appear on all

company official records, stamps and the company seal and in the

communication with the public.

Informal businesses

Those in the informal business sector can also register their business names.

If they are operating their businesses on public land, such as kiosks on the

roadside, they can have their sheds inspected by the officers from Sheria

House and, if the officers are satisfied that the sheds do not inconvenience

others, the application can be approved, if it also meets other requirements.

(The same thing is done by the Local Councils when licensing a kiosk for the

first time.) Akiosk that is built on somebody’s open plot must bear the number

of that plot, hence the plot owner must give consent for the kiosk to be erected.

As a result of the high rate of unemployment in Kenya, many informal

sector operators today are what have come to be known as ‘briefcase’

businessmen and women. They may not have an office to work from, but need

a name with which to conduct business. They sometimes share an office

which they use as their business point. Some telephone bureaus offer such

kind of arrangement with the business people. The bureaus charge them a

fixed fee per month to receive and record all their telephone messages which

they respond to when they pass by. They only need to check at the bureau a

few regular times in a day, or call them, to get message updates.

If such ‘briefcase’ business people want to register a business without an

office, they are allowed to apply for a name as agents.

To register a business

you need a name that

has not been used


If you want to buy an existing

business name or actual

business, all you need is to

inform the Registrar-General of

your intensions. Sale of business and business name

A business person might want to sell their business as a going concern for

various reasons. When someone buys such a business he/she inherits both

physical and intangible value of the business. The intangible is the goodwill of

the business associated with its name, and this may have positive or negative

value. The new owner does not go through the process of registering a business

name, but the Registrar-General has to be informed of the change of the owners

by completing a change of particulars form.

Sometimes one can buy only a name in a situation where no trading has

existed under the registered name, or where no assets or liabilities are passed

over to the new owners.

Sole proprietorship and partnership

A copy of the sale agreement plus the Notice of Change of Particulars form

must be completed and submitted to the Registrar of Companies.

The seller(s) must also sign this form in the presence of the Registrar to

confirm that the sale is genuine.

The Notice of Change of Particulars bears the name(s) of the new business

owner(s). A fee of KShs 600 (the same amount as for a new registration) is

paid upon this application.

Selling a limited company

The sale of a limited company involves only the transfer of shares. The lawyers

for both parties handle the transfer agreement and the stamp duty thereon

depending on the value of shares. A fee of KShs 200 only is paid to the

Registrar of Companies upon the notification of sale. The directors are required

to resign from their positions.

A penalty is paid upon late notification of change of the ownership of the

business name. This penalty is charged on monthly basis and can be quite

substantial if the delay is long.







Choice of premises

The premises you choose will, to a large extent, depend on the

nature of your business. in the service industry (like a shop, an

office or professional services), you may need smaller premises

than in the manufacturing industry. The size of your office or

factory will depend on the customers you expect to serve at a

time, equipment or machinery needed, the size of staff, and the

storage area needed for raw materials or the finished products.

When you are new in business, regardless of how ambitious and hopeful you

are for your business expansion and growth, it is wise always to start small.

Keep your business overheads as low as possible and let the business pay for

itself as soon as possible. You may want to change the premises for a better

and bigger one as the business grows but starting small cannot be over-

emphasized even if you have a lot of money to spend. Remember that

businesses are always risky and anything can happen.

Modern ways of doing business have changed substantially due to

advances made in technology and business management. information

technology has made it easy for one to run an office almost single handedly. it

is indeed quite easy today to be in business without having an office. With a

personal computer, you can key in and send your own mail by the e-mail

facility and avoid the postal process of communication. With the fax and email

you can also send a document from your desk and receive supply orders from

customers. The mobile phone and the pager make it easy for a person to be

reached wherever he/she is. Modern telephone sets, just like the mobile phones,

have facilities to answer and receive messages in your absence or to answer

the caller when the fax is busy.

With this kind of technology one can operate some service businesses

quietly from the residential house. When you receive orders, all you need is

the transport to make deliveries. This transport need not even be yours! Yes,

it can be that easy, no office, no store, no motor vehicles and no staff. This

idea can apply to many businesses. Awide market knowledge enables you to

receive an order, place a similar order with your suppliers and then hire transport

to deliver it to your customers. Many business people in the world have handled

different products and services this way and made a lot of wealth. The only

value you add is to identify a product or service, look for customers and your

suppliers. As for services, we are in the age of outsourcing and sub-contracting.

Entrepreneurs are driven by profit motives, hence, how they can earn maximum

profit at the least cost (of both money and effort).

When looking for business premises either for office or factory go for first

class choice. This does not necessarily mean paying too high rent. For sales

points you require to move as near as possible to your customers. Once you

have identified your customers, you take the business to them. The location

of your premises speaks volumes about you and your business. A business

in the back-street and another in town centre will attract different customers.

ln business you must go where money is if you want to grow fast. A location

with many small income people may give more business volume but with lower

profit margin than one with fewer middle or high income earners. Competition

may be intense in the latter location, but with some research and creativity,

one can enter the market quietly and gradually establish a niche. Big buildings

could be ideal for certain businesses because of the demand from the people

visiting and working in them. Modern buildings are expensive and the tenants

in such buildings are people with good money. Those employed in such places

earn reasonable salaries and can be target customers. Tenants in the buildings

can also be good customers for some products or services.

I know of a cafe operator who has a small

room but makes huge sales and profits. She

has sub-contracted most of her food

preparation and has set standards and other

regulations to her suppliers. The only value

she adds to the food is warming and, of

course, sen/ing it. Preparing such food

herself would have needed a big kitchen and

staff. Talk of creativity.

Availability of premises

Business premises are available throughout all the towns in Kenya. There are

commercial buildings in towns and even residential areas, and godowns which

may be used for factories and storage. One can also build their own business

building if they wish and can afford.

Every town in Kenya has designated residential and commercial areas.

Today, every area of a town is almost both residential and commercial. The

law requires that commercial buildings be in the designated areas and the

plans for such buildings must be approved for commercial (and not residential

use). As much as the type of your business is not harmful or does not affect

the neighbours adversely, a residential building can be converted to commercial

use. An application must be made, approved, and gazetted by the Town Clerk

after the building has been converted to suit the commercial use and the plans

duly ammended. However, many people operate their businesses quietly from

their houses without informing the authorities but avoid to inconvenience their

neighbours. These include nightclubs, welding and metal-work sheds.

Neighbours have a right to complain to authorities when their peace is interfered

with. Such businesses are ordered closed by the authorities after a complaint.

Nairobi office rents

Rents for commercial buildings, especially in downtown Nairobi range from

KShs 30 – 50 per square foot. ln some buildings, one can rent rooms, which

are reasonably big to be partitioned for the secretary/reception and another

room that can take one or two desks. Other buildings let whole floors but not

rooms. lt is up to the tenants to partition the floor to suit their requirements.

Many small business operators make a team of two or more to hire a room.

They share the office running costs. They may not necessarily be in the same

business or related in any way. This office offers them the contact point. The

secretary serves her several bosses who usually come here to receive

messages and perhaps make some calls. Other small business operators

take the whole office by themselves try other ways of generating revenue such

as by offering photocopying, typesetting or even telephone or e-mail services

to the customers. This extra income supplements main business incomes

and helps pay office expenses. As businesses grow, these business people

can then afford to have their personal offices without teaming up or doing the

extras such as bureau services unless they are a valuable source of income.


There are many estate agents in almost all big towns in Kenya who can assist

someone to find a business premise to suit their need. Classified advertisements

in daily newspapers are another source. Property managers can be contacted

for the same need, at least for the properties they manage. Some buildings

have bill boards for advertising available space for letting. New buildings are

usually booked in advance as they near completion. It is exciting doing

business in a new modern building.


Commercial buildings are let formally. This means that you sign a lease

agreement which indicates the terms and conditions of the lease. Many leases

expire after two years and may be renewed. Rent is payable quarterly and

increments may be annual.

Upon signing the lease, you pay the legal fees, VAT on that fee and

Stamp Duty for the registration of the lease. Service is charged to cover

communally provided services by the landlord like water, electricity, cleaning,

and security. This can be for example KShs 5 per square foot, or included in

the main rental figure given. An average office can be of 600 to 1000 square

feet. The first payment for the lease of an average single room office in Nairobi

may cost as much as KShs 160,000 — 250,000.


When you rent a ground floor shop, regardless of what you intend to do with it,

a goodwill is charged. The amount charged will depend on the size of the

shop, the location of the building and the class of the building. Other floors do

not attract any goodwill (unless of course, you are buying an existing business).


Subletting business premises can also be considered. Some landlords do not

mind their tenants subletting their premises especially in these hard times. If

you decide to rent under such arrangement, ensure that the landlord to be is

up to date with the rent payment or else you will risk your furniture and equipment

being auctioned. lt makes sense not to sublet from a competing business.

But it could be that your business and that of the main tenant (your landlord)

match so well that both businesses benefit a lot from each other.

An idea of teaming up into partnership may even arise. ln business,

opportunities are everywhere. Do not ignore such an eventuality. As your

business grows, your office must reflect your personality, what do you stand

for in life‘?. lt may change for better or continue to look clumsy and bare.

Choosing a business

Investment in the property development sector offers many opportunities to

those who have money. Currently, there is no government or donor participation

in this sector. The development of both commercial and residential properties

is mostly left to individual investors. Estate agency and property management

are other business worth considering. Tenants, buyers and property developers

always look for space or someone to manage their properties and estate agents

and property managers can find a business niche here.

Display of business certificates

ln the business premises, the name of your business must be prominently

inscribed on the outside of the premises. Also the copies of the following

certificates should be displayed in the main office: business registration, VAT

registration, and PIN.

Some businesses may need more than these certificates depending on

the nature of their business. The display ensures that when officers from various

public offices visit your premises for any reason they will easily see these

important documents.



The Jua Kali, as the name suggests – hot sun (or under no shelter

businesses are operated either in the open or under temporary shelte

(kiosks). ln Kenya, the operators of Jua Kali businesses are almost caugh

in a culture of not just remaining small, but also never graduating to forma

and more organised businesses. Some of them are doing pretty well ant

others are in businesses with big potential for expansion. When you tall

with them, they realise they can expand their businesses or even operate

them in a more organised way, such as by keeping records and advertising

What l have found among many of these operators is that they realise tha

they can do better if they operated their business in a formal way. But they

are not interested. They are not in a hurry to do that. Reason? They have

some fear for converting to formal business. In the Jua Kali industry, apar

from trade council licences, taxes and their related accountancy costs are

not there. Modern offices also require additional staff like a secretary anc

some basic facility like a telephone. Nonetheless, some Jua Kali operators

are, for all practical purposes, running a modern office. The difference is

the premises. Indeed it is the premises that distiguishes formal from

informal sector. Formal businesses are usually conducted in permanent

buildings with identifiable offices whereas informal ones are in temporary

sheds or just in the open, or even from the residential house.

Many Jua Kali businesses produce a variety of quality goods and

equipment. Many shops in shopping centres stock Jua Kali products which

one might think are manufactured in big modern factories. For instance,

many furniture items you find in high class shops in the towns are made by

Jua Kali artisans in their sheds. The artisans are capable of duplicating

any design available. If they conducted their business more formally, they

could expand and improve their products for a wider distribution network.

But this can only be done in an organised and better working environment.

ln this way, the business would grow and produce better goods, offering job

opportunities. A visit to various Jua Kali sheds is an eye open to many

businesspeople looking for products to stock in their shops. One discovers

with surprise the variety of equipment and light machinery manufactured by

these artisans, and which can be used in industries.

Many educated people have joined the Jua Kali sector after failing to

get jobs, or after being frustrated in poorly paying jobs. Some of these elite

Jua Kali entrepreneurs are now known as “briefcase businessmen”

because oftheir mobility. They have no fixed offices but instead move around

with a briefcase which contains vital documents that they need in their


To all Jua Kali operators I would say – The future belongs to them. But

this is conditional. Being in Jua Kali, survival is not easy since funds initially

are a problem but with patience they can establish themselves to make

money and gain invaluable business experience. Those that will capitalise

in full on this vital experience are best placed to reap full fruits of a reviving

economy. Such entrepreneurs will have one distinguishing factor, big

dreams and willingness and the ability to expand and take risks associated

with business growth. In the process they will create jobs, goods and

services for the society, money and a name for themselves. ‘The less

enterprising will remain trapped in the culture of remaining stagnant for

lack of vision and fear to venture into the more organised formal sector.

The Jua Kali learn business survival the hard way. With little initial

capital and having to adjust to a hostile environment, they become hardened

quickly. Many risks are taken, losses absorbed and lessons learnt the hard

way. The determined and skilled ones survive, making progress to transform

their businesses and lives. ln his inspiring book, How to Win in the Coming

JUA KALI BOOM, S. M. Wamae argues that the experienced Jua Kali

entrepreneurs may actually turn out to be the industrialists of this country.

But it is only those with great vision and ambition to apply knowledge and

experience to expand their businesses and grow who will succeed. Not the

fearful and the dull. The future belongs to the informed and the courageous.

Trade licences

Since the Single Business Permit became operational, a trade

licence is issued free to business people operating formal

businesses. That is, usually those operating from permanent

premises. But the single business permit must be paid for before

the trade licence is issued by the Ministry of Trade.

Those in the informal sector are exempted from the trade licence. These

include: hawkers, those operating from open markets and from temporary and

semi-permanent structures. This is why a plot number is a necessary particular

in the trade licence form. Proof of ownership or tenancy of permanent premises

is necessary for obtaining this licence.

Professionals do not apply for this trade licence since they obtain

registration from their boards set up by the relevant ministries. This registration

is free. Currently, the professionals are, just like other business operators,

required to pay for only one single business permit from their relevant local

councils. The annual membership fee for their associations is a different matter.

These professionals include accountants, engineers, doctors, architects,

auctioneers, valuers, pharmacists, estate agents and others.

Applying for a trade licence

  1. Trade licence is issued in each District by the office of the

District Trade Development Officer.

  1. The form is given free of charge as well as the licence. You

apply for a new licence which you have to renew annually.

  1. When applying for a new licence, you need:
  2. a) PIN card
  3. b) National identity card or passport
  4. c) Business registration certificate or certificate of


  1. d) Tenancy agreement, if you are a tenant, or copy of title

deed if the plot is yours

  1. e) Foreigners must produce passport and valid work


When applying for the renewal of the licence you need only

application form and a copy of the expiring trade licence.


Apart from the professionals, there are a few other

businesses that require a special or additional

licence. They include the following:

  1. Liquor and petroleum products distribution

which require licence from the District

Commissioners or Provincial


  1. Manufacturing ofdrugs, poisons (like


  1. Trade in or involving live animals and plants,

obtained from relevant ministries and

designated research institutions.

Single Business Permit


in the process of liberalising the economy, a lot of procedures and

unnecessary requirements on business people are being reduced

or eliminated altogether. The single business permit (to replace

various licences is in operation. Trade licence is free as one of the

measures of de-regulating the economy and facilitating trade.

All local councils now issue single business permits as a

council licence fee. Councils propose various licence fees

depending on the prosperity of their area. The fee must be

affordable to the local business community.

Fees charged by the councils vary. They are based on a

number of considerations:

a) Prime location – This attracts premium licence. Central

locations attract higher licence fee than far away locations.

b) Number of employees – The more the workers, the higher

the licence fee.

c) The surface area of the business premises. The larger

the premises (in square metres), the higher the licence fee


Businesses are coded in classes. Each class has a

combination of the location, employees and premises size.

Licence fees are determined by each local council, and

submitted to the Minister for Local Government for approval

before they are gazetted by the Town Clerk of that council.

County councils have different economic activities. Therefore

councils fix rates of fees only for the activities available within

their localities.

Fees charged are determined by councils and depend on the

economy of the residents. They are the main source of revenue

for the councils.

County councils and the Nairobi City Council charge licence

fees on all business activities, whether formal or informal.

ln order to encourage compliance, a penalty of 3% per month

is charged on late payment of the permit.

The process of obtaining a business licence

An example

Putting up a temporary kiosk — A Nairobi case, which is typical of all councils

except for the amount of fees charged.





You get an application form from the City

Inspectorate Department for KShs 200. The

offices are opposite the Kenya Bus Service

Station, along Race Course Road.

Complete the forms and indicate where you have

identified as the site for your kiosk. The plot owner

should give a written consent for your kiosk.

However, on public land (open areas) the council

has to grant permission. After completing the

forms, you proceed to the Muoroto council offices

for the approval of your kiosk. If approved, you

pay the appropriate licence fee and then proceed

to erect your kiosk.

The same case applies to veranda businesses like

shoeshine or newspaper vendors with a stand.

Every year you have to apply for the renewal of

the business licence. The renewal application

must be accompanied with a copy of the initial

approval of the temporary shelter where applicable.

Compliance in paying for a

business permit in time is

important to avoid being


Local authority business licensing

The local authorities issue and regulate business licensing under the Local

Government Act, Cap 265 of Kenya Laws.

The informal business licence

What mainly distinguishes formal from informal business is that informal

business is carried on from a temporary shelter or no shelter at all. Such

areas of operation include no fixed abode like hawking, temporary shelters on

the council land or open spaces and on other people’s undeveloped plots.

Human resource

The current high rate of unemployment gives a potential employer the

°PP0I1Ur1ity to pick from a wide choice of qualified people to employ in

the business. Many unemployed people have good qualifications and a

good number are graduates from universities, polytechnics and various

colleges. School leavers, both at secondary and primary school level,

are also many.

As a result of the shrinking economy, many people have been retrenched

from their jobs. Others still holding onto theirjobs are, for various reasons,

looking for opportunities for betterjobs. Many retirees are idle even though

they are still energetic and willing to take up job offers on different terms.

These people form a large pool of highly experienced and educated workers in

various sectors of the economy.

Modern workers are quite enlightened and fully aware of their rights.

Similarly, a liberalised economy with little government interference means that

there is lack of uniformity in the way employers reward and treat their workers.

Free market economy sets competition on how the workers are treated by

various employers. Today’s employees know and can compare how well or

“Oi they are being treated. They also know what they can earn elsewhere.

Trade unions also help to fight for the employees rights. The media plays a

crucial role in the society by exposing the employers who mistreat their workers.

There are some non governmental organisations that play a similar role. The

government, especially under the Employment and Factories Acts, monitors

employers to ensure that workers are treated fairly.

What all this means is that an employer cannot really treat the workers

poorly and get away with it. At least not for long. Well treated workers will

perform effectively. Customers like to conduct business with producers or

service renders who have good reputation. All business people know how

much bad publicity can affect their businesses. The last thing a businessperson

would want is collision with the government. lt is therefore important to know

what the law requires of you as an employer so that you can comply with it.

Avoiding problems with the government and the society is the only way a

business can stabilize, create goodwill and earn profit consistently.

The government sets minimum salaries and wages. However, many

employers reward their lowest paid employees by better salaries than the

government s minimum salaries.

Trade disputes can arise from decisions made by an employer and is

considered unfair by an employee. In case of unionisable employees who are

also trade union members, such grievances are taken up by the trade union

The law requires that the trade union must first file the case with the Ministry of

Labour for arbitration. When such arbitration is not accepted, the trade union

can if they wish, file the case with the Industrial Court. Such cases will be

I between the trade union and the employer. As for the employees who are not

members of trade union, grievances with the employer, such as unfair dismissal

from employment, can be filed straight in a civil couit. Nevertheless, the Ministry

of Labour is available for assistance in arbitration if approached by such an

employee It is not compulsory that an employee must first approach the

Ministry of Labour before filing the case in court, unlike the trade union. Industrial

disputes are between the workers and the management.

In case of any problem, an employer may wish to consult the Federation

of the Kenya Employers (FKE) which is a non governmental organisation that

offers services to employers who are its members. The Ministry of Labour is

also available for both the employees and the employers.

Highlights of the Act. (The Act applies to all workers except the Armed

A casual employee is one whose engagement is for a day

and his payment is made at the end of the day. His contract

is therefore on daily basis. With some employers, casual

jobs are permanently there which means that a casual worker

can work for long, almost like an full employee only that the

terms are different. A casual worker who remains, or is likely

to remain for long in the job may be eligible for statutory

employees deductions like PAYE. However, some benefits

like medical and annual paid leave may not be available.

Salaried (and contractual) employees can be deducted

statutory payments and any contributions to a retirement

benefit scheme approved by the Commissioner of Labour.

An employee is entitled to a paid leave of not less than 21

working days after every 12 months of service.

A working woman will be entitled to not less than 2 months

of maternity leave, but shall forfeit annual leave during the

year of maternity leave.

An employee will be entitled to at least one rest day for

every working week.

An employer will provide his employees with reasonable

housing accommodation or rent.

Every employer will provide his workers with supply of

wholesome water within a reasonable distance of the

work place or housing accommodation provided by him.

Every employer should ensure that the workers are accorded

proper medical treatment when ill, once this has been brought

to his attention.

When an employee dies while in employment, the employer

shall report this in a prescribed form to the labour office

nearest to him or to the District Commissioner where a labour

officer is not available. At the same time, the employer will

surrender all the wages due to the deceased and the

deceased’s personal belongings or property to the office.

lf the worker dies or is injured while on duty and is

consequently away from duty for 3 days, the employer must

report this to the nearest labour office, and in case of death

surrender the wages and the deceased’s personal belongings

to the same officer.

An employee can be dismissed from service on matters

ofgross negligence such as:

  1. i) absenteeism without leave or any other lawful cause.
  2. ii) being drunk at work thereby rendering himself

incapable of performing his work. using abusive or insulting language or behaving in

a similar manner to his employer or person placed in

authority over him by the employer.

failing to, or performing his assigned work

carelessly and improperly.

failsing or refusing to obey a lawful or proper

command over him from the employer or the person

placed in authority over him.

being arrested for an offence punishable by

imprisonment and is not out on bond or bail or

otherwise released within 10 days.

if the employee commits or is suspected on

reasonable and sufficient ground of having committed

a criminal offence against or to the substantial

detriment of his employer or the employer‘s property.

Upon the termination of service, the employee shall be given

a certificate of service which shall contain:

  1. i) name and address of the employer
  2. ii) name of the employee
  3. m) date when employment commenced
  4. iv) the nature and usual place of employment
  5. v) date when employment ceased
  6. vi) such other particulars as may be prescribed.

Apart from this certificate, the employer is not bound to give

an employee a testimonial reference or certificate relating to

the character or performance of the employee.

No person shall employ a child in an industrial undertaking,

except under a deed of apprenticeship. A child is defined

under this Act as an individual, male or female, who has not

attained the age of 16 years. Anyone who employs or causes

to be employed such child will be guilty of an offence.

Women employees will work between 6.30 a. m. and 6.30

  1. m. except when they are in management or industries where

such workers’ absence would cause severe disruption of

manufacturing, processing or in sensitive services or in case

of emergencies. The same case will apply tojuvenile workers.

Any one employing a juvenile (a child or a young man or

woman) shall keep a register with these details:

Name, date of birth, when employment commenced,

when employment ceased. A permit must be sought

from a labour officer for employment of a child.

Every employer shall keep a record of all the employees

employed by him lawfully. This record shall be availed for

inspection by labour officers.

Every employer shall keep readily available the first aid kit.

Work places shall be clean, with clean toilets, clean and

well drained floors and painted walls and ceiling.

A factory is defined in the Act as: Any premises in which

persons are employed in manual labour, in the process for

or incidental to:

  1. i) Making any articles or part of articles.
  2. ii) Altering, repairing, ornamenting, finishing clearing or

washing, or the breaking up or demolition, of any


  1. m) The adapting for sale of any article in the premises

for trade or gain. Such premises can be in the open

or an enclosure.

Cleanliness of the factory

  1. i) Accumulation of dirt and refuse should be removed


  1. ii) Floors of every workroom shall be kept clean,
  2. m) All inside walls, partitions, and ceilings or tops of

rooms and walls, sides, passages and staircases

shall be kept clean and at least once a year washed

with hot water and soap, and others painted or white

washed by using proper materials.

Afactory shall not be overcrowded while work is being carried

on as to cause injury to workers. Workrooms should be high

enough, 9 feet (about 3 metres) high and every worker should

have at least 350 cubic feet of space.

Adequate ventilation shall be provided for each workroom.

Sufficient and suitable lighting shall be required for each

workroom whether natural or artificial.

Floors should be sufficiently drained to avoid accidents.

Sufficient and suitable sanitary conveniences shall be

provided to the workers. They should be separate for both

sexes, well maintained, with lighting and kept clean. Local

authorities may enforce this rule.

Dangerous areas or machines should be fenced or guarded to

avoid accidents.

Workers should not work with machines or proceeds where

they can get hurt unless they have received sufficient training

for the job or work under supervision of a skilled worker.

In every factory, there shall be provided and maintained,

sufficient means of fire extinguishing, clearly visible to all. In

addition, all inflammable materials must be kept safely and

secured. Similarly, adequate means or passage of escape

shall be provided.

Staff welfare – There shall be provided:

  1. i) Adequate supply of wholesome water.
  2. ii) Adequate and suitable facility for washing.
  3. m) Adequate accommodation (storage) for clothing not

worn during working hours.

  1. iv) Supply of seating facility, especially for female

workers who work while standing, so that they can

sit down whenever an opportunity occurs.

  1. v) First-Aid kit, visible to all.

Every employer must protect his workers from all danger while at work.

The protection should include clothing, masks and any bodily protective

gear depending on the physical or health danger they are exposed to.

This Fund was established by an Act of Parliament (1998), Cap. 89 of

the Laws of Kenya.

  1. a) An employer with any salaried workers earning over KShs

1,000 per month must register with the fund.

  1. b) The fund, just like the NSSF, has offices in most of the District

Headquarters. These are: Nairobi, Westlands, Industrial Area,

Limuru, Malindi, Mombasa, Vol, Garissa, Meru, Embu,

Machakos, Thika, Nyeri, Nakuru, Kericho, Eldoret, Kabarnet,

Kisii, Kisumu, Kakamega, Mumias, Migori and Kitui.

  1. c) Below is a sample contribution per salaiy

Salary (KShs) Contribution (K Shs)

1,000 – 1,499 30

7,000 – 7,999 160

14,000 – 14,999 300

15,000 and above 320

  1. d) Those in the informal sector business can contribute voluntarily,

KShs 60 per month, if they are interested in joining the fund.

  1. e) When an employer registers with the fund, his employees are

registered and given a contribution card and a personal number.

  1. f) Contributions are made by way of revenue stamps of various

amounts. The employer buys them from the fund offices

according to the contributions of his employees. They are

posted on the employees cards as per contributions every

month. Each employee must have their own card.

  1. g) The stamped cards are submitted to the fund as end of year

returns and are inspected regularly by the fund officers for


h) Returns are made in July after the July – June financial year.

  1. i) t Benefits to members: The NHIF has numerous accredited

hospitals — government, mission, private, community and other

health providers countrywide. Only the in-patients benefit from

the hospitalization credit of KShs 400 — 2000 per day for a

maximum of 180 days a year.

  1. j) A member’s dependants can gain access to this facility.
  2. k) Failure to register or generally comply with this Act attracts a

penalty of 5% of the omitted contribution.

The Income Tax Act (Cap. 470)

PAYE is an income tax administered by the Commissioner of Income

Tax in the Kenya Revenue Authority (KRA). The income tax is charged

and collected under Cap. 470 of the Laws of Kenya.

  1. a) Every employer with liable employee must register with the

Income Tax Department, collect the tax and remit it to the


  1. b) An employee (and any individual earning taxable income) is

entitled to a personal relief per month or per year. This relief is

a deduction on the total charged for that month/year. This

means that those employees or other individual income earners

with incomes attracting tax of less than the personal relief

granted, are in effect, not liable to tax.

The PAYE stationery is issued by the Commissioner (the

department has currently 14 stations throughout the country).

The stationery which include the PAYE Employer’s Guide and

the Monthly Tax Tables are issued to employers free at the

beginning of each calendar year.

Tax deduction cards are part of the stationery for recording

each employee’s monthly earnings and tax deduction details.

At the end of the year, the employer should give his employees

a Certificate of Pay and Tax Deducted as a certified copy of

tax deducted. This form is part of the PAYE stationery when

an employee is leaving employment during the year, and should

be issued with the same certificate for the tax deducted for

that part of the year. ‘

Every employee with chargeable income must obtain a PIN

which should be quoted in all Income Tax dealings.

PAYE payments includes monthly deductions, tax established

through the Income Tax PAYE audits, interest and penalties

arising from unpaid or audit taxes. All monthly taxes are paid

through the employer’s bank by a Paying-ln-Credit Slip- P11,

which is part of PAYE stationery.

Employers can, in some cases, appeal to the Local Committee

against the imposition of PAYE penalty by the Commissioner.

lf an employee is not satisfied with the tax deducted from his

salary, he can seek advice from the Commissioner of Income

Tax (or his representative) or from a professional auditor.

According to the Act, gains or profits from employment include:

wages, salary, leave pay, sick pay, payment in lieu of leave,

fees, commission, bonus, gratuity, or subsistence, travelling,

entertainment or other allowances received in respect of

employment or services rendered. This means that any

lumpsum payment or non-cash benefit enjoyed by an employee

from his employer, is taxable.

Non-cash benefits are chargeable.

The Commissioner of Income Tax sets fixed rates on some

non-cash benefits enjoyed by the employee (when the

employer pays for them).

The taxable value of the benefit is determined by considering

the higher of the Commissioner’s set fixed rate and the actual

cost (determined at arms-length of the benefit).

The Commissioner has set fixed rates for saloons, hatch-

backs and estate motor vehicles ranging from ‘<Shs 3,600 –

14,400 per month, and for panel vans rates varying from KShs

3,600 – 7,200 per month depending on the c.c. of the car.

Range Rovers and similar cars are classified as saloons.

Rates of tax are set for each year though they may apply

for several years. Monthly tax tables given to employers are

on monthly earnings and are workedout accordingly. However,

personal relief must be deducted from the figure obtained from

the tables to arrive at monthly tax.

PAYE guidelines for 2002 and 2003 give only the rates of tax

and illustrate how monthly tax can be calculated. Without

the help of a computer, the employer has to workout individually

tax for each employee. In the past when income was

expressed in pounds (£), it was easy to produce a table on

taxes. Such a table would be too bulky when the income is

now being expressed in shillings.

To arrive at the employee’s taxable income for the month

you add up cash and non-cash benefits.

Minimum wages guidelines

Minimum wages in Kenya are governed by the Regulations of Wages and

Conditions of Employment Act. The First Schedule of the Act is on the

employees of the Agricultural Industry while the Second Schedule is on General

Wages. The regulations cover only the junior or unionisable employees and

give only the minimum wages. However, in a situation of poor economy, demand

for labour is lower than the supply due to the high rate of unemployment. In

such a situation some employers take advantage of the rate of unemployment

to offer very low salaries and the workers have little option. They may know

their rights but are not able to fight for them or even participate in the trade

unions that can fight for them. They do not want to risk theirjobs, poor as they

are, because some of their employers do not allow them tojoin trade unions.

On the other hand, there are employers who offer very good salaries and

working conditions to their employees. They know that it pays in the long run.

it is also true that some employers may pay very low salaries because their

businesses are also not doing well. However, it makes more business sense

to keep only a few workers and pay them well than keep a large poorly paid

and treated workforce. It is now quite easy to keep few but skilled workers in

order to harness full benefits of modern technology in automation and in re-

engineered business processes. Just like a couple having the number of children

they can adequately care for, it is similarly important for an employer to keep

only a number of workers he/she can afford to take care of.

Minimum wages guidelines are revised regularly to cope with inflation.

However, the wages are still too low as the government has also to consider

the ability of the employers to afford those wages. Too high wages can create

industrial unrest when employers cannot afford to effect them and trade unions

rush to the courts to enforce the requirement. Apart from taking a legal action

to settle a legal dispute, trade unions can also organise strikes which can

create industrial unrest if they are widespread.

At the end of it all, employers usually pay their workers what they can

afford. Mean employers follow the government guidelines even if they can

afford to pay their workers higher than the minimum wages recommended.

This situation is quite common in many depressed economies where

unemployment is high and workers cannot easily change jobs.

It is therefore possible to conclude that the rate of unemployment in a

country is the main determinant of wages. Booming economies have low rate

of unemployment and vibrant competition which leaves the entrepreneurs,

customers and workers well rewarded for their resourcefulness, including labour.

In poor economies, economic gains are small and the distribution is uneven.

ln depressed economies, jobs that exist are not awarded or rewarded on merit.

Kenya’s employment situation should be viewed in this light.

To a good employer, the minimum wages guideline should be taken just

as that; guideline. lt is wise to give your workers the best you can afford and

expect the best you can get from them. After all, your workers know how well

your business is performing. The business could also be doing poorly due to

your mismanagement. And your workers know it very well.

Electricity V

Electricity in Kenya is supplied by the Kenya Power and Lighting Co. Ltd.

(KP&L). It has the sole responsibility of marketing all power commercially

produced in the country. Due to the danger of the electric power, the KP&L

Company must certify the correct and safe wiring of the building before they

can instal the meter to connect the power supply.

When applying for power connection, you need a consent letter from

your landlord or a copy of the tenancy agreement unless the property is yours.

In addition, you need to attach a copy of your National Identity Card or Passport

to your application form. If the premises were supplied with the power before

your occupation, you need to submit the last paid bill to prove that there no

arrears. You are required to pay a deposit before you are allocated an account

number and your meter connected. .

The fixed charge you pay for the meter connection will depend on the

volume of your expected power consumption. Equally, the charges for the

power consumption will vary accordingly. Your application form gives details of

the electric items that you will be using like water heater and refrigerator.

Ordinary consumption has a low fixed rate upto the consumption of 7,000

units (kWh). Commercial and industrial consumers have theirs too which are

rated differently. Power consumption charge attracts VAT, but domestic use

attracts the tax above 200 units consumed. There is also a fixed fee of KShs

75 for domestic consumers and KShs 175 if the house is fitted with an extra

water heater. Commercial consumers pay a fixed fee of between KShs 150

and 7,500 per month. ln addition, there is a charge of 3 cents/kWh for ERB

which is used to fund the Electricity Regulatory Board, that regulates the power

sector. Another charge of 5% is levied by the government on the electricity bill

for the Rural Electrification Programme. The main item of the power bill is the

consumption charge.

You can get more details on electric power charges in Kenya, from the

booklet, Schedule of Tariffs and Rates 2000 for Supply of Electricity by KPLC

and ERB under Section 62 of the Electricity Power Act 1977. It is available at

KP&L and costs only KShs 20.


In this information age, communication, and especially telecommunication

through information technology, is crucial for success in the management of

businesses, governments and social life.

After Iiberalising the tele-communication sector in Kenya, the government

set up the Communications Commission of Kenya (CCK) in 1998 through an

Act of Parliament. The Communication was given the mandate to: licence and

regulate telecommunication, radio communication as well as the postal services

in the country. Prior to this arrangement, the Kenya Posts and

Telecommunications was a giant monopolist controlling the mails as well as

the telecommunication service. The corporation then split into two: the Postal

Corporation of Kenya Ltd. (to handle the mail service) and the Telkom Kenya

Ltd. to handle the telecommunication services. Since then a number of private

players have entered the market.

The Internet

Today, you cannot talk of modern telecommunication without

mentioning the internet (International Communication Network) which

has completely changed the way businesses is done. The e-mail is

frequently used by the larger society, in addition to the business

community. Compared with telephone, it is cheaper, faster and more


In Kenya, the internet Services Providers (lSPs) are registered

and licenced by the CCK. Over fifty (50) lSPs have been registered. It

is estimated that currently over 60,000 Kenyans are connected to the

internet. Information Technology is yet to take root in Kenya and the

rest of Africa. According to CNN‘s programme Inside Africa, access

to the internet sen/ice in Africa is 1:1000. ln South Africa, the situation

is a pathetic ratio of 1:5000!

The annual licence fee for an ISP (to the CCK) is KShs 100,000.

An application form is obtained free of charge but returned with a fee of

KShs 10,000. Annual payment is payable upon the approval of the

licence. The Telkom’s Jambonet is currently the sole provider of the

internet backbone for international connection.

lt is the lSP’s that now connect individual customers to the Internet

service. The charges for the connection are as low as Kshs.1,000 (no

deposit) and monthly rates below KShs 2000 subject to certain hours

of usage (on E-mail and general internet surfing). The good thing with

this industry is that players are many, hence selection is wide. As

things stand now, one has no monetary excuse for not being connected

into the so-called www (world wide web). At least for anyone in

business, it is important to get linked to this fast growing technology.

Having your own address (E-mail) and a website is important for your

contactjust as in directories and yellow pages. Connection and monthly

access charges are still likely to drop further.

Internet bureaus (cyber cafes)

There are now a number of established lnternet Cybercafes from

which you can send or receive E-mail or simply browse in the lnternet.

Rates charged are competitive. You can install your own E-mail

address as well as a website in the cafes without having to own a

Personal Computer (PC).

indeed if you are in business, a business card without an E-

mail address speaks volumes about you and your business.

lnternet is the in-thing now all over the world. You lag behind this

technology at your own risk. Through the lnternet communicate

with the world and let others know who you are, what you offer for

trade and how to contact you. lt is absolutely essential to have an E-

mail address, more so for business people.

PCs are now becoming more affordable. Computer equipment

now attract a low duty of only 5%. Except for our weak currency,

prices of computers have gone down substantially, worldwide. One

can get a complete main brand PC plus a printer for around KShs

110,000 only. Used computers are also available and sell for

anything above KShs 25,000. Cloned new PCs cost much less

than the branded new ones. Excluding a printer, a good cloned

costs about KShs 60,000. Most used computers on sale in Kenya

are sourced from Canada by one firm.

Radio communication

Radio communication is an old medium of communication. lt is best suited for

organisation with its people or units scattered in a wide area. These may be

companies with field officers who need to be contacted regularly, or even

companies and other institutions with several branches in one area widely with

whom communication is regular. Yet another good case for radio communication

is a transport company which needs to be in touch with their staff wherever

they are on the road (this is quite common with tour operators and long distance

transporters). As for security service providers, work would be impossible

without radio communication. The police communication system is the best


In the modern communication technology, radio communication faces

stiff competition, but has still its own place in the industry. Mobile telephones

as well as the pager services add competition to the fixed telephone services.

Radio communication suits both mobile and stationary networks. Its main

advantage is the low running cost. Indeed its only annual running cost is the

annual licence fee. Another important advantage is that since each radio

communication applicant is allocated a unique transmission frequency, there

is no congestion in the communication network since other people cannot

access your frequency. Other costs include charging the battery and usual

maintenance of the equipment. Another important advantage is that you can

pass same message to several people simultaneously since communication

is open to all people linked to your network. Indeed, this is a valuable way of

sharing information and keeping everyone well informed on things going on in

the organisation. Lastly, this mode of communication discourages informal

conversation hence less time is wasted in communication, unlike other media.

This mode of communication is proving popular with the big supermarkets

where fixed telephone extensions are not suitable for mobile staff.

There are also some disadvantages that go with the radio communication.

The main one is that the initial capital outlay is high due to the cost of the

equipment. Secondly, there is no privacy in communication since other people

in the network can hear everything being said within the network. This

discourages idle talk, such as is found on telephone use. Thirdly the process

of obtaining licence for radio communication is cumbersome and one has to

give adequate reasons to prove there is genuine need for the licence.


There are two types of radio communication transmission equipment. There

are those for short range (VHF) and for long range (HF). Short range

communication covers a radius of about 50 kilometers while long range may

cover the whole country (Kenya). The cost of the equipment depend on the

communication range as well as the quality of the equipment being bought. ln

addition, a transmitter or the main communication equipment must be

accompanied by several mobile sets for networking. Note that the radio mobile

sets can be fixed in a mobile equipment like a motor vehicle or in a fixed place

like in a branch shop or factory. These mobiles receive and send messages to

the people linked to the frequency network which is controlled by the main

transmitter called from the station. in the liberalized market, there are many

dealers in radio communication equipment.


lf you intend to go into business, you need money to

invest in that business. When you are in business, your

main aim is to make money, and lots of it. You therefore

need money to make money.

It is one thing to make money, it is another to keep that money. It

takes effort, commitment and sacrifice to make money. But part of

the money you make must be saved if you have to invest or reinvest

and earn more. lf you can not save, you cannot invest. Without

investments, there is no financial prosperity since you are living

from hand to mouth. That is why it takes sacrifice. The alternative

to investing your own money is borrowing. But still no one will lend

you money if you have nothing of your own. You will require even

more discipline to keep your commitment to yourfinanciers.

Here below are some suggestions that can help you to raise,

save and invest your money. The list is by no means conclusive.

What limits an enterpreneur’s opportunities is only his/her own

imagination or creativity. Indeed, raising money for any project, is

to a large extent a personal creativity. More ideas naturally inspire

more imagination.

The financial sector

Commercial banks

Commercial banks in Kenya have gone through a turbulent period

in 198O’s and 9O’s. The two decades have witnessed the collapse

of a number of financial institutions and commercial banks. The

1990’s saw many banks declaring ten digit annual net profit for

some years. This was not out of suddenly improved efficiency, but

from the high yielding treasury bills and bonds that yielded an

interest rate over 60%! The collapse left the banking industry shaken

and the Central Bank of Kenya had to keep a closer supervision

overthe banks.

The high interest rates had double effect on the banks. On the

one hand, quick money was earned within a short time from the

government bonds. Since average bank lending interest rates rose

above the treasury bills interest rates, bank loans (including old

loans) now yielded more income. On the other hand, the high

interest rates adversely affected the economy. Investors could not

borrow as the cost of money was just too high. These with long

term loans were caught unaware. Interest rates had risen without

the corresponding rise in the real incomes. This meant that many

bank debtors could not afford these interest rates. The result was

auctioning of securities offered. Many bad debts could not be

recovered. The accumulation of adverse effects of the high interest

rates prompted one member of Parliament, Hon. Joe Donde, to

table a motion in Parliament to control the bank interest rates. The

parliament passed the motion in December, 2000. The effect of

the controlled interest rates is to be seen in the economy, though

the control has not been effected.

Foreign Exchange Bureaus are quite useful in a free market

economy. They offer competitive exchange rates on various foreign

currencies. People buy foreign currency if they wish to visit those

countries or buy goods from there. Those selling goods to foreign

markets are paid in foreign currencies and those retuming or visiting

Kenya come with some foreign currencies. It is convenient to

transact business in local currency. Exchange rates are publicised

daily by the newspapers and electronic media.

Commercial banks also handle foreign exchange business.

However, the bureaus usually offer better rates than the banks.

Some hotels and individuals may also offer such facility but at less

attractive rates, and some, illegally. Forthe deposits, banks offer

current, savings and fixed deposits accounts. A few banks offer

interest on current account deposits. But all banks offer interest on

the savings accounts. Currently, this deposit interest is quite low

compared with interest charged on loans. According to the Central

Banks Annual Report for 1997, this huge interest gap can be

attributed to inadequate competitiveness in the banking sector. The

report notes that seven leading banks control 63.6% of total

deposits. This means that what these giant banks set is what the

smaller banks follow.


This is a fast growing sector in our economy. Micro-finance

institutions are established to serve the small business community,

usually the informal sector, which does not qualify for credit facilities

in the commercial banks. In Kenya, about 500,000 youths annualy

join the already flooded labour market. Some other people are

retired early or on age grounds and are not stable financially. These

people start small businesses which cannot survive or grow without

some injection of additional capital.

Micro-finance institutions are most appropriate for small

business as they do not ask for any collateral. Their lending, initially,

is as low as KShs 15,000 only. You must clear this loan in one

year, or earlierto qualify for another loan. This continues until you

can qualify for a loan of KShs 120,000. After this, a customer is

now encouraged to approach commercial banks as he/she has

already developed a good track record of business performance,

honesty and some capital which could be used as collateral. These

institutions do not serve individuals directly, but through a group.

Customers are encouraged to team up in groups of 30 members

made up of smaller groups of say, 5 or 6 members. The groups

meet once every week. When they meet, they give their weekly

fixed contribution which can be as low as KShs 100. This amount

is deposited on the group savings account operated through the

financial group. Every member makes a commitment to contribute

a certain amount of money per week throughout his stay under this

arrangement. After two months of faithful weekly meetings anc

contribution, one qualifies for a loan, which is also repaid througt

weekly payments in addition to the usual contribution. The loar

repayment is fora year divided by 52 weeks so that one can repay

without strain. The interest is usually lower than that of the

commercial banks. ‘

The savings are important in that they encourage financial

discipline and sacrifice in saving. When one leaves the institution,

he/she is refunded total savings contributed plus interest accruing

from that deposit forthe period of the contribution. Through these

meetings members exchange business ideas and experience and

occasionally they receive business training from the institution

trainers. NGOs are key players in these institutions, but foreign

government agencies and branches of United Nations also

participate in this sen/ice. Others are churches and foundations.

Major institutions in micro-financing

K – Rep, Pride Africa, Faulu, Kenya Women Finance Trust (K\N FT),

Action Aid, Care Kenya and Small & Micro Enterprises

Programme (initially run underthe NCCK). Noting the importance

of the micro-finance institutions in Kenya, the Annual Report of

Central Bank of Kenya for 1999 notes that the Bank together with

other stakeholders have taken a number of steps aimed at

promoting micro-finance business. These steps are:

  1. a) To establish a micro-finance unit at the CBK to

coordinate micro finance matters.

  1. b) Licence the first ever micro-finance bank, K-Rep Bank

Ltd (already registered).

  1. c) Registering the association of micro-finance A

institutions. (A1 ) that will facilitate the streamlining of

the micro-finance operations. The Government is now

visibly encouraging and supporting this micro-finance

sector due to the important role it is playing in poverty


Hire purchase

Hire purchase shops and firms sen/e a crucial role in our economy.

Their services enable customers to use household or office

equipment orfurniture while paying forthem slowly. Some of them

offer very attractive terms such as nil deposit, and the repayment

period can also be very generously set to ensure that you repay the

monthly instalments without much strain. lt is usually very difficult

for those with low income to save enough for the assets they need.

With the hire purchase one enjoys the use of the items while at the

same time excercising spending discipline due to the financial

commitment in paying the monthly instalments. This way, one can

provide for private and business assets, which could not have been

done on cash purchase.

ln the same way lease hire companies avail their assets to

those who need them for a short time or even for long period but

cannot afford to buy them. Often, in some businesses, it makes

sense to lease ratherthan buy some machinery or equipment.

Informal loans

In the liberalised economy, investors are targeting small income

earners who will need some financing to buy assets like company

shares, household items and used cars. In the local daily

newspapers you will see such money lenders advertising their

services. Banks are not attrative to small business people who

normally have no stable businesses or securities. With adequate

infonnation on the money lender you want to approach, small needy

items can be financed. Some of the lenders are honest and conduct

their businesses professionally although they require some form of

security for their money.

Co-operative societies

Cooperative societies have played a key role in the development

of this country. Currently SACCOs lead in credit lending in the

country, far ahead of the commercial banks. The combined effort

of NGOs come second, other different lenders third, then

commercial banks.

Lately banks have been investing in high yielding treasury bills

and bonds, and either avoiding the risky individual borrowers, or

the borrowers themselves avoiding the banks due to high bank

interest rates. Employees should take note of this so that they can

make full use of their SACCO societies or where none exists to

struggle for the establishment of one. Saccos give loans with no

collateral except one’s share contribution and at low interest rate

of 12% per annum, or 1 % per month on reducing balance.

Nairobi Stock Exchange (NSE)

Registering in the NSE

For a company to be accepted and listed in the Nairobi Stock

Exchange (NSE), it must apply for registration to the Capital Market

Authority (CMA) and the NSE through an established broker. Some

of the requirements to be fulfilled are that the applying company

must have been earning reasonable profits for the last five years

(although even a shorter period can be considered) and that it must

be willing to sell not less than 20% of its shares to the public. Another

requirement is that these shares must be bought by more than

1,000 members of the public. A fee has to be paid to the CMA and

the stockbroker.

Advantages of going public are many. One, selling shares in

public is a cheap way of raising funds instead of borrowing from

the money market. ln addition, once listed in the NSE, one can

keep on selling more shares to raise more capital. This cheap

capital can be used to expand the business, modernize (to adopt

new technologies) or even branch to new related businesses by

diversifying. Equally important, a listed company enjoys publicity

that is not enjoyed by private companies in that its shares are traded

openly and its end of the year performance results are published in

the media. This means that the affairs of the company can be

discussed openly, including in the Annual General Meeting, and

that there are many members ofthe public with a direct interest in

the progress of the company. Awell performing public company

gives profit and prestige to the shareholders. The original owners

usually remain major shareholders. On the other hand, some

company owners avoid going public for various reasons. Some

sole owners as well as family businesses avoid becoming public

companies. To them, going public meanslosing control overthe

management of the company, since professional managers mual

be employed to achieve the results desired by the shareholders.

This means that the new co-owners of the company have a lot ol

say on how the company is being managed and have powers to

sack senior management employees. Every aspect of the public

company is exposed to the scrutiny of the public (strangers) unlike

the private company. This is what makes many family businesses

avoid going public.

In the developed countries, stock exchanges are very active,

for instance, the New York Stock Exchange (NYSE) is a world leader.

In these countries, many companies desire to go public. In the

developing countries, public companies are mainly multinationals

and a few local ones. ln Kenya for instance, not many companies

desire to enlist in the NSE. The issue of many of the local companies

being family owned and managed is not the main problem. Neither

is the fearfor publicity. One of the main underlying reason could be

the public ignorance of the benefits to be gained by going public.

There is need, therefore, to create more awareness of the benefits

that a company gets by enlisting in the NSE. To go with this

awareness is the need to make the process of enlisting in the NSE

less difficult and more attractive. This awareness should coverthe

imagined fear of publicising the performance of a company as well

as the public scrutinising records. Efforts should be made to

encourage the business community to be more transparent in their

way of doing business and to practise sound business

management. Equally important, the NSE and CMA should lobby

the government for more incentives that can attract investors to

enlist in the NSE.

Whatever it is, a lot needs to be done to encourage more

companies to go public in Kenya. Public listed companies are

better managed which means good profits and more tax revenuu

to the govemment. ltwill take a combined effort of the Government,

the NSE, the CMA, the media and the business communily,

including the professionals like auditors and lawyers, especially

through their associations to encourage more companies to oiilm

in the NSE. It must be borne in mind that even in the de

world, all today’s big public companies started as one man show

or a family business. Later, especially in orderto finance expansion,

the companies went public. There are a lot of Kenyan businesses

today that can achieve a growth rate they never ever imagined by

going public.

Shareholders are usually quite demanding because they need

good returns on their investments. Public companies are therefore

under great pressure to earn huge profits to satisfy their numerous

shareholders. In order to earn such profits, good business

management skills must be applied consistently. A profitable

company declares good dividends at the end of the year. This

raises the value of that company shares, in the NSE. These kind of

shares sell fast and profitably in the NSE. This is the desire of

every shareholder and stock exchange agents. But earning profits,

especially consistently, requires committed managers running the

business in a professional way. By firing inefficient managers and

hiring, retaining and rewarding the efficient ones, the business

management culture improves in the country. The more the public

companies are, the faster and stronger the culture develops. Well

managed businesses utilize resources in a more efficient way and

creates wealth and jobs as well as cheaper quality goods and

services for the society.

Insurance companies

Insurance oompanies offer van’ous policies. When you buy a policy,

you commit yourself to monthly or annual payments. This is a form

of saving and has another advantage. An insured asset is more

valuable and even readily accepted as a collateral for a loan than

one not insured. Some other policies have lumpsum payments at

maturity. This lumpsum payment may enable you finance some

projects or for planned leisure. Moreover policies like the one on

life have a loan facility. You can borrow from your insurer using this

policy as a collateral, hence, by taking an insurance policy, you

save and at the same time you have opportunities for financial gain

from the policy.

Government funding

Government of Kenya participates in various ways in assisting small

businesses financially. Institutions like the K.l.E., ICDC, AFC and

others assist business people buy the necessary equipment for

their businesses and (AFC) farms. There are services which are

collectively provided for general use, such as the sheds built forthe

open air artisans by the Government. Then there is a revolving

fund which is managed by the Ministry of Trade jointly with the local

authorities to provide loans to small businesses. The loans are

available from every District Trade Officer. The maximum amount

is KShs 50,000 and security is necessary. Of equal importance is

the business training which is offered by the same ministry to

business communities.

Commercial papers

Commercial papers are promissory notes sold by large companies

to investors. Currently there are about 15 issuers of such papers,

and the value of the issued papers is about KShs 9.5 billion. The

registered company (by CMA) agrees with a prospective investor

and borrows money from that investor at a negotiated interest rate.

The lender holds the note (certificate) as security for his/her money.

Commercial papers are regulated by the Capital Market

Authority which registers and monitors the performance of the

companies issuing them. With the difference between bank lending

and deposit interest rates being so high, it is cheaper to borrow

from the public using this paper as the borrower can offer a better

interest rate to the lender and in return the borrower also enjoys the

benefit of a lower interest rate than the banks lending rate. ln other

words, a lender gets a higher interest rate than from a bank deposit

account and the borrower gets a lower interest rate than from a

bank loan. This process of financing is still new in Kenya and is

rather sophisticated. Only a few big borrowers and lenders have

therefore taken it up. lt is a good alternative to bank financing, just

like the selling of shares through the NSE.


Assets, land and livestock

ln all borrowing, except in micro-financing where amounts borrowed

are quite small, collateral is always required, even when borrowing

from the Government agencies. What this means therefore, is that

it is essential to build capital base whenever an opportunity arises.

Since money is never enough relative to our many wants and desires

in life, it takes discipline and strong will to save. You invest only

what you are able to save and accumulate. Further more, no

financier will lend you 100% of your financial requirements. So,

you have no option but to save. You are required by financiers to

contribute a certain percentage of the amount required as a

commitment to the success of the project. In other words, if it fails,

you also stand to lose substantial contribution.

From experience, we find that it is not easy to regularly set

some money aside, especially by the low income earners,

regardless of how anxious and ambitious they may be to save in

order to invest. It is therefore advisable that while planning your

financial projects, save a bit and invest that saving in assets that

will appreciate in value with time. One such asset is land. Apart

from appreciating so that you can sell it for a gain, you can also use

it as collateral for any loan. However, not all land appreciates nor

is easy to sell when you wish to. So invest wisely. Investment

opportunities vary depending on whether you live or wish to invest

in urban or rural area. Livestock is another good investment for

rural areas if facilities are available. You can buy some young

animals and feed them for sale. Indeed when you are saving,

nothing is too small to invest your money in. Different animals,

including chicken, can serve different purposes as yourfutu re needs

may be. It all depends on your income and level of savings and the

environment you are operating in. By selling some of this livestock,

you can go into business, expand an already existing business or

even do other personal projects like fumishing your house or paying

fees for your children.

Whatever it takes, build your capital base. Have some assets

that appreciate overtime and invest wisely. You cannot go wrong

this way. ln the same way, you may consider having fixed deposit

accounts, Treasury Bonds and Bills, various shares, insurance

policies, membership in employees’ Sacco Societies, as well as

good friends who may prove valuable in times of financial need.

Friends can indeed be an investment and that is why once in a

while it may cost something to keep them. Equally, you may have

to finance someone with a financial need. In assisting friends or

relatives, give only what you are willing to lose, in case of non

payment. Businesses are risky and anything can happen regardless

of the effort and intentions. Surely, you are not going to auction

properties of your relatives orfriends who can’t pay back your money.

Informal groups

Never ignore the power of informal groups for financial support.

Women in Kenya, especially those in towns, know the important

role these groups can play in theirfinances. Such groupings have

two main roles: mobilising savings and providing lumpsum

payments or credit facilities to the members. It is easy to join,

contribute and borrow. Since these are informal groupings, they

constitute familiar people and rarely accept strangers. They give

their regular contributions to each member on rotational basis,

although others contribute and save their contributions in order to

invest in income generating projects.

External financing

lt is possible for Kenyans to source funds off-shore. With a good

borrowing plan and collateral, one can borrow from banks outside

Kenya. international Finance Corporation (lFC), an affiliate of the

international Monetary Fund (IMF) for instance, lends money to

business people with viable large projects. Some embassies also

give credit facilities for business people buying huge machinery

from their countries. However, the government requires that such

off-shore loan interest should not exceed a certain rate. East African

Development Bank is another source of finance for people involved

in regional trade.

Treasury bonds and bills

These are Government promisory notes attracting higher interest

rates than the banks. They are sold to big investors since the

minimum value of such stocks one can buy is quite substantial. To

those with free big money, this is a profitable and secure investment.

Commercial banks and insurance companies put most of their

investment money on these stocks.

The Treasury Bills are of a short duration of either 91 or 182

days, whereas the Treasury Bonds are of a longer period from half

year to six years. This way of raising funds by the government is

called local borrowing and the stocks sold go to swell the domestic

public debt. Investors prefer these stocks because they carry less

risk and also have a higher yield. You can sell or buy these shares

in the Nairobi Stock Exchange, though they are freshly sold by the

Treasury through the Central Bank of Kenya.

Taxes and exemptions

Kenya Revenue Authority (KRA)

The Kenya Revenue Authority was established in 1995 by an Act of

Parliament, under Cap. 469 of the Laws of Kenya. The Authority has

the responsibility of assessing, collecting and accounting for the taxes.

It collects revenue and administers the revenue Acts for the purpose of

facilitating trade.

The Authority collects four main taxes: Customs and Excise, Income

Tax, ValueAdded Tax (VAT) and motor vehicle road licences and driving licences.

It may collect any other tax assigned it by the government.

The Authority is headed by a Commissioner General. There is a board

of directors headed by a chairman. There are three Revenue Commissioners,

the Register of Motor Vehicles and heads of various service departments.

The KRA has introduced remarkable efficiency and professionalism in

tax administration and operations. In the period of about eight years it has

been in existence, its impact is clearly felt in the society. The headquarters,

revenue and support departments, are all housed at Times Tower building in


The main items of revenue

Taxes collected by the KRA are:

  1. Import duty
  2. Excise duty
  3. income Tax
  4. Value Added Tax (VAT)
  5. Registration and transfer fee of motor vehicles and road and driving

licences. Other government revenues collected by the authority on agency basis


. Petroleum Development Fund

. Import Declaration and Fund (IDF)

Foreign Motor Vehicle Inspection Fee

. Road Maintenance Levy

Road Transit Toll Levy

. Aviation Revenue

. Revenue Stamps

Kenya Bureau of Standards (KEBS) Levy

. Widows, Children and Parliamentary Pension Fund,

Betting Tax

Gaming (casino) Tax.

Whereas the Road Transport Department registers motor vehicles in

Nairobi and Mombasa, it offers services through other KRA stations for revenue

departments, and has its own staff in a number of towns. Elsewhere, the

District Commissioners execute some RTD services on behalf of the


The Customs and Excise Department has its staff in every town with a

main post office, in order to deal with chargeable goods arriving and being

exported through post office. in addition, the department hasits offices in

towns with bonded warehouse.

A tax payer may lodge

a claim for any credit

that he was entitled to

but was not given.

lliluutu: .

The Income Tax

lncome tax is almost as old as the customs duty in Kenya. Both taxes were

introduced in the country by the colonial government and have existed ever

since. Unlike the VAT and Customs and Excise, income tax is a direct tax on

individuals and limited companies. All the other taxes are indirect in the sense

that they are indirectly related to your consumption of taxable goods and services

regardless of your size of income. The tax is administered by the Commissioner

of income Tax, under the Kenya Revenue Authority.

Anyone with chargeable income must notify the Commissioner of it,

declare and pay tax thereon. lf you wait until the Commissioner finds you out,

you will be charged penalty and interest on the unpaid tax for the period the tax

remained unpaid.

Tax is charged on income. That income must have accrued or be derived

from Kenya. Such income may be earned by residents or non-residents.

Sources of taxable income

  1. a) Business for whatever period of time carried on,
  2. b) Employment or services rendered,
  3. c) A right granted to another for use or occupation of property,
  4. d) Dividend and interest,
  5. e) Any amount deemed to be income of a person under the income

Tax Act or by rules made thereunder.

income tax is chargeable on people. ln law, these people are either

individuals or limited companies (including trusts). The income of a partnership

is charged on the partners who share that income. Apart from collecting taxes

directly, the Commissioner may appoint agents to collect taxes on his behalf

and remit that tax (and account for) to him.

(vi) Pension or retirement annuity

(Taxable if above per annum) –

(vii) Public or private entertainment

performance –

(vm) Presumptive Income Tax

(PIT – optional) 2%

(ix) Commission fee from insurance

company to brokers 5%

To others (for example agents) 10%

(x) Interest (Government bonds

attracts different rates) 15%

(xi) Consultancy & Agency 10%




(on aggregate amount

KShs 24,000 per month or more)

(xii) Contractual 5% –

(on aggregate amount

KShs 24,000 per month or more)

The tax is collected at the point of payment by the payer who withholds

it and remits to the Commissioner. Withholding tax is payable by the 20″‘ of

the month following the month of collection. PAYE is payable by the 9″‘ of the

month following the month of deduction. Advance Tax on commercial motor

vehicles is payable to the Commissioner of Income Tax. It is charged on both

cargo and passenger vehicles using the prescribed rates.

Rates of tax

individual rates of tax are graduated whereas companies have a fixed rate of

tax. Equally, individuals enjoy some tax relief, which means that personal

relief is a threshold below which no tax is payable. Not so with limited companies

which must pay tax on the whole profit they make. A limited company does

not enjoy the personal relief. A partnership is not a person in law. Its income

is therefore distributed among the partners and taxed on them.

Late payment of tax attracts a penalty of 20% and monthly interest of

2%. Married women can now be taxed individually under the Income Tax Act.

Previously they could be taxed under their husbands return of income. They

enjoy the same rights. They can submit their own returns and be assessed for

tax separately from their husbands, if they want. Men and single women are

taxed individually.

Personal identification Number (PIN) is issued by the Commissioner. It

is issued to both residents and non-resident people living in Kenya.

PIN is required in many public offices where you may require service. in order

to be able to get these services, you need PIN. To apply for PIN, you need to

complete a PIN application form (obtainable from the income Tax Department

offices) and attach your ID or passport copies. Limited companies, partnerships

and trusts must also obtain their PIN.

There are various allowances given on the wear and tear of capital

expenditure on assets being used in the business. Such assets include

industrial buildings, motor vehicles, farm works (on farming), machinery, general

plant and equipment as well as the approved hotels (tourist class usually).

Like PAYE for employees, business people are now required to pay their taxes

in instalments. The first instalment is paid four months after the last accounting

business date, then 6, 9, 12 and the final tax 14 months after the end of the

accounting date. A refund arise when one has paid more tax than the actual

assessed tax. Tax payable includes any penalties and interest that may accrue

on one‘s tax account. A taxpayer lodges a claim for any credit on tax that one

was entitled to, for example personal relief, and was not given.

Corporation rates of tax from 1974 to year 2001

Year of income



1974- 1989 45.0

1990 42.5






1991 40.0 47.5

1992 37.5 45.0

1993 — 97 35.0 42.5

1998 and 1999 32.5 40.0

2000/and on 30.0 37.5

A resident company is the one that has:

Been incorporated in Kenya and the Laws of the land

Management and control exercised in Kenya

Has been gazetted by the Minister as a resident company.

Income Tax is charged on a particular year of income, and therefore the above

conditions are viewed for any year of income.

The Value Added Tax (VAT)

VAT is a consumption tax charged on local and imported goods and services.

It is charged under CAP. 476 of the Laws of Kenya. It came into being in 1990

after replacing the Sales Tax.

The VAT Department is administered under the Kenya Revenue Authority

and is headed by a Commissioner. The Department has 17 branches spread

in the country.

The tax is charged and collected at the point of sale by any VAT registered

business. This tax is paid to the Commissioner monthly through the banks

and the returns filed with the Commissioner. In case of imported goods, the

VAT is collected at the point of entry by the customs officers on behalf of the


Anyone doing business, as a sole trader in partnership or limited

company, must register with the Commissioner as an agent for VAT. You

need PIN, copy of registration of business or business incorporation certificate

and then complete a registration application form.

You need to register as VAT agent if:

  1. a) You offer for sale goods or services whose sales value exceeds

KShs 3,000,000 per annum.

  1. b) You are a professional. There is no turnover limit for services


  1. c) You are about to commence manufacturing taxable goods or supplying

taxable services which in the opinion of the Commissioner will exceed

any of the values prescribed. In the 6″‘ Schedule of the VAT Act.

  1. d) You deal or offer for sale designated goods or services irrespective of the

amount. A designated person is the one who deals in designated goods

or services.

Designated goods are certain sale items like jewellery, timber, pre-recorded

music and domestic electronic appliances, motor vehicles parts and

accessories, household or domestic electric or electronic apparatus and

appliances. They are taxable at every stage of sale.

Designated services are:

  1. i) Accountancy services including auditing, book-keeping.
  2. ii) Legal and arbitration sen/ices including any services supplies in connection


  1. m) Sen/ices supplied by auctioneers, estate agents and valuers.
  2. iv) Sen/ices supplied by clearing and forwarding agents.
  3. v) Motor vehicles parts and accessories, household or domestic

electric or electronic apparatus and appliances.

  1. e) You sell in any one year four or more motor vehicles.
  2. f) The Commissioner is satisfied that the interests of the

business requires registration, though certain registration

requirements for eligibility are not met.

  1. g) The Commissioner is satisfied that the interests of the business

requires registration even though you do not meet certain eligibility

requirements defined in terms of their turnout levels or supply of certain

designatory goods and services.

Designated goods and services have no sales value limit.

Customs and Excise Duty

Customs and Excise Department is headed by a Commissioner and is

managed under the Kenya Revenue Authority. Customs is a term that is used

to refer to the government taxes that are levied at points of entry of a country

on imports and exports (though rarely). Such taxes include import duty, Excise

and VAT or exports. its collection also includes implementing laws on forbidden

goods by blocking them from entering the country or confiscating. Goods that

are restricted for domestic market are not allowed to leave the country.

it is levied on imports whether they are for private or commercial use. For

this reason, customs offices are to be found at the country‘s entry points:

ports (Mombasa and Kisumu), borders (Malaba, Busia, Lunga Lunga, Taveta,

Mandera and others) airports (Jomo Kenyatta international Airport – Nairobi,

Moi international Airport — Mombasa, Eldoret, and other airports/airstrips

handling aircrafts from neighbouring countries — like the Wilson Airport in Nairobi).

Excise tax is levied on a few items consumed in Kenya. These goods

may be manufactured in Kenya or imported. For this reason, this tax is collected

alongside lmport Duty at the entry points as well as at the manufacturers’

premises when excisable goods are being released to the market. These

Excisable goods are: cars, tobacco (and tobacco products), beer and perfumery

as well as the bottled water and fruit juices.

Currently, importers are required to clear their goods through a registered

clearing and forwarding agent. They generally charge a fee of0.5%to 1.0% of

the value of goods to be cleared. However, motor cars are charged a fee of

between KShs 10,000 — 15,000. Since these agents are many, it is easy to

choose a good one. (The fee is not fixed but you can find an agent who may

accept less and do a good job).

Exports do not attract any tax except for the raw hides and skins which

attract 20% export duty in order to protect local tanneries. in addition, there

are tax incentives for the manufacturers who produce forforeign markets under

the EPZ, EPPO arrangements.

Registration and licensing

of motor vehicles

Registration and licencing

Registration and licencing of motor vehicles and drivers are handled

by the Registrar of Motorvehicles. This is done in the Road Transport

Department which is managed by the Kenya Revenue Authority. It

has only one branch in Mombasa, but District Commissioners (DCs) ,1

are appointed as agents to perform some delegated work by the I

Registrar. Currently, the KRA is taking over this work from the DCs. In /

the few towns where this has happened certain stations of the KRA l

departments have been assigned this duty. ‘Q

Motor vehicles

There are over 500,000 motor vehicles on the Kenyan roads. Of these, saloons

and station wagons form about 50%. Utility vehicles especially pick-ups form about

20%. Matatus registered annually are slightly more than the buses/coaches. Both

form about 5% of the total motor vehicle population in the country.

With the liberalisation of the economy, used imported motorcars far outnumber

the new motor cars registered annually. Most of the imported used motor vehicles

are saloon cars.

The Registrar of Motor vehicles registers, issues number plates and

Registration books (log books) for all the vehicles, trailers, tractors, mobile cranes,

motorcycles, and all other types of motor vehicles. In addition, the Registrar keeps

records for all the vehicles registered by the department; civilian, G.K., parastatals,

city/county councils, and UN bodies as well as embassies.

Registration number plates

There are five types of number plates issued by the Registrar of Motor Vehicles; for

civilian, GK, parastatals, local authorities and diplomats. The civilian number plates

have a white oblong plate at the front bumper of the car and yellow oblong or squire

plate in the rear bumper depending on the make of the car. The GK plates are

similar in design and colour as civilian ones only that the numbering is different.

The parastatals have same design of plates but that both plates are blue in colour.

Local Authorities have green colour while diplomats have red ones. It is only the

civilian and the GK plates that have white front and yellow rear plates. Others have

one colour for both plates.

The history of car registration numbers in Kenya

Motor car registration identification numbers have been changing over the


Government vehicles

During the colonial era, the government administration was on His/Her

Majesty’s Service (HMS). Therefore government vehicles registered then

bore the following identification marks:

  1. a) HMS 3457 (HMS followed by 4 digits).

This continued until after independence (December, 1963) when

the registration marks were changed to Government of Kenya (GK).

  1. b) GK 1245 (GK followed by 4 digits).

This series continued until GK 9999 when a new one GK 001A was


  1. c) In 1982, this serialisation was changed to:

GK A789 (GK, gap followed by a letter and three digits).

  1. d) In 1997, a new serial numbering was adopted:

GK B653C (GK, gap, a letter, 3 digits and a letter).

Civilian registration numbering

The registration identification marking of civilian cars are as follows:

KAB 159

KAB is the registration Mark

159 is the registration Number

  1. a) Upto late 1950’s, the registration identification numbering was:

H 4965 (A letter followed by 4 digits.

  1. b) In the 1960’s the registration numbering was changed to:

KAK 498 (K followed by two letters, gap, then three digits).

  1. c) ln 1989, this was changed to KAM 697E (K followed by two letters,

gap, three digits followed by a letter.

Diplomats registration numbers

They are given red number plates and registration marks are as follows:

99 CD 19 K (first figures are the code for the diplomats country. CD shows it is

for a chartered Diplomat and the next set of figures is allocated by the embassy,

for instance depending on the rank of the car owner in the embassy, then at

the end is K which means the embassy is based in Kenya.

United Nations bodies

They are also given red number plates and registration marks which are as follows:

12 UN 23K (The set of figures are for the UN department (for example,

Population Fund, UN HQs, UNDP, UNICEF, next set with a K are forthe rank or

code of the car owner).

Development corporations linked to embassies

Car registration marks and numbers which are on red number plate appear like


32 DX 76B K (The first set of figures are the code for the country of the embassy,

next set of two letters are for the NGO then followed by ranking of the car

owner and ending with a K.

United Nations Environmental Programme (UNEP)

With its Headquarters in Nairobi, the organisation is allocated its own registration

Mark and Numbers, for example, UNEP 246K.

Non-profit making international organisations

These organisations include; ICRAF, ILRAD, Red Cross, ICIPE, PTA Bank, They

are issued with red number plates with the following pattern; KX 06 B 68 (The first

two letters are a code for these NGOs, and the next two digits and a letter are for a

particular NGO, then the next set of figures are the serial number of the car or

ranking of the officer who owns it.


  1. a) lnitially trailers had a registration or serial marking as follows:

Z 2837

  1. b) In 1971, this was changed to:

ZA 0149 ($ digits)

Government officials

Government officials with special numbers for their official cars are:

The Attorney General – (AG 1) V

The Speaker of the National Assembly — (SNA 1)

The registration process

New motorvehicles

The registration process is handled by the motor vehicle dealer before handing

over the vehicle to the customer. A motor car should not be used without number

plates and appropriate licences.

The Registration Book is issued to the car owner later by the Registrar.

However, if the motor vehicle is bought on credit, the Registration Book will show

joint owners and it will be released to the financier who will retain it until the loan is

repaid. The transferwill then be effected to remove joint ownership. The dealer will

obtain from the vehicle buyer the necessary information and documents for the

motor vehicle registration.

Imported used motor vehicles

Most used cars in Kenya are imported from Japan and Dubai. There are some

vehicles also from Britain, South Africa and a few other countries. Those imported

through Mombasa Port are registered in the Registrar’s Mombasa office after they

have been cleared from the entry port.

What you need for registration

Duty and VAT paid receipts, Import Entry form, Foreign Registration Book (with its

certified English translation if the same is not in English), Mombasa Port Release or

Ainuays Bill, Bill of Lading, import Declaration Form (IDF), duplicate valid insurance

certificate, Vehicle Inspection Report for Commercial and PSV’s photocopies of the

owner’s national identity card or business registration certificate where applicable,

PIN card and the completed application Form (Form A).

For duty free vehicles, a copy of an exemption letter or documentary evidence

of the exemption should be attached, such as a passport, for returning residents.

The rest of the usual registration documents except the tax paid receipts should

also be availed.

Other motor vehicles registered by the Registrar of Motor Vehicles are: Ex-

Army, Ex-Govemment, Ex-CD or other foreign bodies, and the Police auction cars

whose registration number has been tampered with or unknown and the owner

cannot be identified. Where duty was not paid initially during the previous registration, it must now

be paid before the vehicle can be registered for the new owner. This means that the

motor vehicle will have to be taken to the Customs and Excise Department for

valuation for the payment of this duty.

To register a vehicle, you will need to take to the Registrar the registration

book, number plates (a pair), duty receipts, copies of your identity card, PIN card,

duplicate insurance cover and a completed application Form A.

Parastatal and local government cars are allocated the same serial registration

number but with civilian number plate. Parastatals have blue plates while the local

govemment have green.

Motor vehicle registration can be changed for very limited reasons. For

instance, if a motor vehicle is stolen and is missing for an unreasonably long period,

it may have been involved in many crimes and may be unsafe for the owner to

continue using it with the same registration number. If the Registrar accepts your

request, the vehicle will be re-registered and you will be issued with new number

plates, registration book as well as road licences after paying the usual fees. The

Registrar will require from the applicant a letter from the C.l..D office confirming

need for such change.

Registration book is usually posted to the car owner under certificate of posting

using the address given in the application Form “A”.

The vehicle registration book must be surrendered to the Registrar when the

vehicle has been written off. The Diplomats must have their forms Pro lB or DAI

approved by the officers of the Ministry of Foreign Affairs and lntemational Co-

operation. The approved forms will form part of the registration application


Registration of the customs auction vehicles

You need:

The payment receipt, letter from the Commissioner of Customs and Excise

Department confirming that the applicant was the winning bidder, Vehicle inspection

Report (VIR) for commercial vehicles, photocopies of ID and PIN card, duplicate

insurance cover, customs receipt and application form ‘A’ duly signed.

About Author

Sabina Kamene