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.
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.
SOME CAUSES OF
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).
- Restructuring a number of public enterprises
in telecommunications, energy and banking
in order to improve their performance.
- Establishment of the Kenya Roads Board
(KRB) in July, 2000 in order to improve efficiency
in roads rehabilitation and maintenance.
- Reforming the civil service with a view
to improving efficiency of the central government
(now in progress).
- Government internal security agencies are being
strengthened to improve their capacity to contain crime.
- 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.
Kenya has a number of minerals:
Soda ash, limestone, salt, diatomite,
and fluospar. There are also small
amounts of gold and silver available in
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
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
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
- 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
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
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.
Types of business organisations
- a) Sole proprietorship – This is registered for one
business proprietor, though the family and
employees can help manage it.
- b) Partnership — The business is registered for two
or morejoint owners.
- c) Limited company — There are private and public
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.
Every business name submitted is not always accepted for registration are
For a name to be accepted for registration, it must not:
- 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.
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:
- a) The business name.
- b) The general nature of business.
- 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.
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.
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.
PREMISES WHEN IN BUSINESS YOU REQUIRE A PLACE
TO MAKE TRANSACTIONS, TO CONTACT
YOUR CUSTOMERS WHO ALSO WILL BE IN
TOUCH WITH YOU, AND TO PRODUCE OR
PROCESS YOUR GOODS AND SERVICES
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
THE MICRO-ENTERPRISE OPERATORS
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.
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
- Trade licence is issued in each District by the office of the
District Trade Development Officer.
- The form is given free of charge as well as the licence. You
apply for a new licence which you have to renew annually.
- When applying for a new licence, you need:
- a) PIN card
- b) National identity card or passport
- c) Business registration certificate or certificate of
- d) Tenancy agreement, if you are a tenant, or copy of title
deed if the plot is yours
- 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:
- Liquor and petroleum products distribution
which require licence from the District
Commissioners or Provincial
- Manufacturing ofdrugs, poisons (like
- 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
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
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.
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:
- i) absenteeism without leave or any other lawful cause.
- 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:
- i) name and address of the employer
- ii) name of the employee
- m) date when employment commenced
- iv) the nature and usual place of employment
- v) date when employment ceased
- 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
- 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:
- i) Making any articles or part of articles.
- ii) Altering, repairing, ornamenting, finishing clearing or
washing, or the breaking up or demolition, of any
- 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
- i) Accumulation of dirt and refuse should be removed
- ii) Floors of every workroom shall be kept clean,
- 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
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:
- i) Adequate supply of wholesome water.
- ii) Adequate and suitable facility for washing.
- m) Adequate accommodation (storage) for clothing not
worn during working hours.
- iv) Supply of seating facility, especially for female
workers who work while standing, so that they can
sit down whenever an opportunity occurs.
- 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.
- a) An employer with any salaried workers earning over KShs
1,000 per month must register with the fund.
- 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.
- 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
- d) Those in the informal sector business can contribute voluntarily,
KShs 60 per month, if they are interested in joining the fund.
- e) When an employer registers with the fund, his employees are
registered and given a contribution card and a personal number.
- 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.
- 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.
- 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.
- j) A member’s dependants can gain access to this facility.
- 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.
- a) Every employer with liable employee must register with the
Income Tax Department, collect the tax and remit it to the
- 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 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
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.
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 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
The financial sector
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
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:
- a) To establish a micro-finance unit at the CBK to
coordinate micro finance matters.
- b) Licence the first ever micro-finance bank, K-Rep Bank
Ltd (already registered).
- 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 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.
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.
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
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
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
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 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 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
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.
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.
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
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:
- Import duty
- Excise duty
- income Tax
- Value Added Tax (VAT)
- 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,
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.
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
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
- a) Business for whatever period of time carried on,
- b) Employment or services rendered,
- c) A right granted to another for use or occupation of property,
- d) Dividend and interest,
- 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
(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
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
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:
- a) You offer for sale goods or services whose sales value exceeds
KShs 3,000,000 per annum.
- b) You are a professional. There is no turnover limit for services
- 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.
- 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
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:
- i) Accountancy services including auditing, book-keeping.
- ii) Legal and arbitration sen/ices including any services supplies in connection
- m) Sen/ices supplied by auctioneers, estate agents and valuers.
- iv) Sen/ices supplied by clearing and forwarding agents.
- v) Motor vehicles parts and accessories, household or domestic
electric or electronic apparatus and appliances.
- e) You sell in any one year four or more motor vehicles.
- f) The Commissioner is satisfied that the interests of the
business requires registration, though certain registration
requirements for eligibility are not met.
- 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
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
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:
- 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).
- b) GK 1245 (GK followed by 4 digits).
This series continued until GK 9999 when a new one GK 001A was
- c) In 1982, this serialisation was changed to:
GK A789 (GK, gap followed by a letter and three digits).
- 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 is the registration Mark
159 is the registration Number
- a) Upto late 1950’s, the registration identification numbering was:
H 4965 (A letter followed by 4 digits.
- b) In the 1960’s the registration numbering was changed to:
KAK 498 (K followed by two letters, gap, then three digits).
- 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.
- a) lnitially trailers had a registration or serial marking as follows:
- b) In 1971, this was changed to:
ZA 0149 ($ digits)
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
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
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.