Supreme Court Delivers Final Verdict on Japanese Tax Breaks in Kenya as Multi-Billion Projects Get Major Boost
Japanese companies, consultants and technical experts working on Kenya’s multi-billion-shilling infrastructure projects will continue enjoying lucrative tax exemptions after the Supreme Court dismissed a landmark appeal seeking to overturn the incentives.
In a significant ruling that settles a years-long legal battle, the country’s highest court upheld Legal Notice No. 15 of 2021, finding that the tax waivers granted under financing agreements between Kenya and Japan were introduced lawfully and remain valid.
The five-judge bench ruled that the legal framework used to implement the exemptions complied with the laws that were in force when the bilateral financing agreements were signed between 2007 and 2020.
“Emoluments payable from foreign sources in respect of duties performed in Kenya under a technical assistance or other development services agreement are a tax that can be exempted; the appellant, on this issue, did not prove his case on the balance of probabilities,” the judges ruled.
Court explains why Parliament was not required
The judges noted that the agreements were negotiated and concluded before the 2010 Constitution came into force, meaning they were governed by the former constitutional framework.
According to the court, the previous Constitution did not require Parliament to approve such agreements through legislation before tax exemptions could be implemented. At the time, the Executive had constitutional authority to enter into international financing agreements, while Parliament’s role was limited to enacting laws necessary to give effect to treaties.
The ruling effectively confirms that the legal notice introducing the exemptions was validly issued under the applicable legal regime.
Challenge centred on constitutional tax powers
The appeal arose from a constitutional petition challenging Legal Notice No. 15 of 2021, which implemented tax exemptions for Japanese firms and personnel involved in Japanese-funded development projects in Kenya.
The petitioner argued that the waivers violated Article 210 of the Constitution, which provides that no tax may be imposed, varied or waived except through legislation passed by Parliament.
He further claimed that the National Assembly exceeded its constitutional mandate by approving the exemptions through a legal notice instead of passing an Act of Parliament, arguing that the process contravened the Constitution, the Statutory Instruments Act and the Income Tax Act.
However, the Supreme Court found that the arguments did not meet the legal threshold required to invalidate the exemptions.
Japanese-funded projects remain protected
The judgment means Japanese companies and personnel working on several flagship infrastructure projects will continue benefiting from tax relief.
The exemptions cover major development programmes financed by Japan, including:
- The Dongo Kundu Special Economic Zone.
- The Olkaria I Unit 4 Geothermal Power Project.
- The Mwea Irrigation Development Project.
- Electricity distribution improvement projects in Nakuru and Mombasa.
The court also rejected claims that the exemptions unlawfully discriminated against Kenyan businesses by giving Japanese investors preferential treatment.
The judges ruled that the petitioner failed to provide sufficient evidence to prove that the incentives were unconstitutional or discriminatory under the required legal standard.
Parliament had previously questioned fairness
The tax exemptions have previously sparked political debate, with Members of Parliament questioning why Japanese nationals and companies receive tax relief while Kenyan firms undertaking similar work continue paying taxes.
Some legislators also argued that Kenyan companies operating in Japan do not enjoy equivalent exemptions, raising concerns over whether the arrangement creates an uneven playing field.
Despite those concerns, the government maintained that the incentives are part of Japan’s standard financing model used in development projects around the world.
The Cabinet Secretary defended the exemptions, arguing that the long-term economic gains—including job creation, increased investment, higher consumer spending and improved infrastructure—would generate economic benefits that far outweigh the tax revenue forgone.
With the Supreme Court’s decision, the legal uncertainty surrounding the exemptions has now been brought to an end, allowing Japanese-funded infrastructure projects in Kenya to proceed without disruption.
Also Read: Nairobi County Introduces Mandatory Building Fees and New Zoning Rules Under 2026 Policy