Kenya’s Carbon Trade Needs Policy Stability

Kenya’s emerging carbon market requires incentives rather than punitive taxation to encourage meaningful participation in climate action, experts warn. This follows a recent Tax Appeals Tribunal decision overturning a Sh6.9 billion tax assessment against a Kenyan firm involved in a significant carbon offset project.

Tax Tribunal Ruling and Wildlife Works Case

The Tax Appeals Tribunal recently overturned a Sh6.9 billion tax assessment against Wildlife Works Sanctuary Limited, a Kenyan firm supporting the Kasigau Corridor REDD+ Project, a major forest conservation initiative. Kenya Revenue Authority (KRA) had argued that the firm’s carbon credit revenues were taxable in Kenya, as the Kenyan entity performed core project functions. However, the Tribunal found that Wildlife Works Sanctuary Limited acted as a service provider, with risks, funding, marketing, and revenue recognition handled by Wildlife Works Carbon LLC in the United States.

Expert Commentary on Taxation and Incentives

Experts Alex Kanyi and Clarice Wambua emphasize that a clear and predictable policy supporting project developers is crucial for carbon trading. They caution against aggressive tax enforcement that could discourage investment in climate mitigation projects. Wambua stated that incentivizing firms is preferable to treating them as primary tax targets, while Kanyi warned that poorly timed tax enforcement risks discouraging investment. They clarified that the Tribunal’s ruling does not exempt carbon revenues from taxation but highlights the need for evidence-based and structured tax administration.

Kenya’s Carbon Market Activity and Regulatory Framework

Kenya is a leading African participant in the global carbon market, with over 52.4 million carbon credits issued as of 2023–2024. These projects include forest conservation and initiatives like clean cooking, solar energy, and green transport. The country has recently strengthened its legal framework, amending the Climate Change Act in 2023 and introducing Carbon Markets Regulations in 2024. Draft regulations for carbon trading and a carbon registry are also planned.

Future Tax Strategies and Considerations

Despite the evolving regulatory landscape, taxation remains a complex issue. While the Income Tax Act subjects carbon revenues to corporate tax, it lacks clarity on how revenues should be allocated when multiple entities are involved. Experts suggest that transparent project structuring, robust documentation, and early engagement with regulators are essential for sustainable operation within Kenya’s green economy. The government plans to explore a carbon tax on fossil fuels and increase excise taxes on fossil-fuel-powered vehicles, signaling an intention to expand carbon taxation while positioning Kenya as a regional carbon trading hub.