Members of Parliament have rejected the Treasury's plan to impose a five per cent withholding tax on interest earned on new infrastructure bonds, a move that was expected to raise significant revenue for the government. 

The proposal was part of the Tax Laws (Amendment) Bill, 2024, which sought to remove the current exemption on interest earned from infrastructure bonds. 

While making submissions before Parliament, Departmental Committee on Finance and National Planning chair Kuria Kimani explained that removing the proposal would encourage more investments in Kenya.

Infrastructure bonds have been tax-free since its inception in 2009 meaning that it would been taxed for the first time if the proposal would have passed. 

"I move that Clause 14 be amended as per the order paper. (I propose) to retain the provision on bonds which are exempt from income tax which will encourage investment in Kenya, especially in green bonds which promote protection of the environment," Kuria said

"This is where we're deleting the proposed withholding tax on infrastructure bonds," he added. 

The move now leaves the Treasury to source for alternative funding as the ministry had estimated to generate up to Ksh.13 billion annually from interest earned on the bonds. 

The proposal had elicited debate from stakeholders who opined that the new tax measure could lower investor interest in infrastructure bonds. 

Others deemed that it could hurt the government as the cost of infrastructure projects would increase and subsequently dampen the intended benefits of the tax reform. 

The Tax Laws (Amendment Bill, 2024 formed part of the bills that the Treasury tabled in parliament to raise an extra Ksh.174 billion in revenue. 

Others include the Tax Procedures (Amendment) Bill, 2024, and the Public Finance (Amendment) Bill.