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NEMA Re-Introduces Another Tax for Developers

NEMA Re-Introduces Another Tax for Developers

Setting
up a real estate project, road, or any other large facility in Kenya will be
more expensive as the government moves to charge developers an additional tax.

From
June 1, the National Environment Management
Authority (NEMA
) reintroduced the Environmental Impact Assessment (EIA) and
associated fees.

The
Environmental (Impact Assessment and Audit) Regulations, 2003, establishes an
IEA processing and monitoring price of 0.1 percent of the total project cost,
with a minimum of Sh10,000, as well as graded costs for IEA expert registration
and licensing.

For
example, a developer constructing a Sh100 million project will pay an IEA
processing and monitoring charge of Sh100,000.

The
cost of an environmental impact assessment for a project like the Sh87.9
billion Nairobi Expressway might reach Sh87.9 million.

NEMA
states that “Environmental Assessment ensures that proper safeguards,
management, and monitoring plans are put in place to protect public health, the
environment, and to support sustainable development.”

Developers
will be required to pay EIA processing fees, SEA processing and monitoring
fees, Environmental Assessment Experts registration fees, and licensing fees.

“All
applications and payments shall be made online through the E-Citizen-NEMA
licensing portal. Each EIA application shall be accompanied by a certified Bill
of Quantities (BQs) indicating the proposed project cost,” NEMA notes.

The
government had ordered the suspension of the fees, which were the primary
source of income for NEMA, in October 2016.

However,
the authority claims that because money from the exchequer remained
insufficient, the decision had a negative effect on its operating capital,
placing it in financial distress.

Contractors
used to pay between Sh10,000 and Sh40 million for environmental audits,
depending on the risk levels of their projects, until the fees were eliminated.

Before
beginning a project, those whose project expenses exceeded Sh5 million also had
to pay 0.5% of the contract’s value to the National Construction Authority
(NCA).

Developers
have warned that the reintroduction will raise project expenses, which will add
to the already high cost of building.

According
to players in the sector, building projects including industries, institutions,
roads, and other infrastructure will have an impact on home prices.

According
to the Kenya Property Developers Association
(KPDA
), the cost increases will also have an impact on the delivery of
inexpensive homes being implemented as part of President Uhuru Kenyatta’s Big
Four Agenda.

It
is unlikely that the economic situation will improve in the near future to
improve the standing of the developers, according to KPDA chairman Ken Luusu,
who also noted that the nation is still suffering from the consequences of
Covid-19.

According
to him, the fees represent the “unprecedented increase in the pricing of
construction supplies” that have been seen recently, representing the
highest prices ever.

“We,
therefore, would like to urge the government to rescind this decision that is
anticipated to worsen the already unsustainable cost of construction,” said
Luusu

The
government has also been urged to reconsider reintroducing the fee by the Architectural Association of Kenya (AAK).

It
notes that, among other things, the campaign season, high fuel prices, and the
resurfacing Covid-19 danger have already had an impact on the building
business.

AAK
Secretary Marylyn Musyimi said, “The decision should be rescinded awaiting
careful evaluation.”

If
the cost must be reinstated, she said, developers should pay fees based on risk
rather than a one-time payment for each project. According to the organization,
these should be grouped into low- to high-risk categories.

It
has additionally urged NEMA to enhance enforcement and compliance.

“With
these fees what are they undertaking to do or improve? We still have a
deterioration of the environment despite payment of the fees from noise, air,
solid and liquid waste pollution, etc,” AAK said.

Jennifer
Musyimi, president of the Institution of Quantity Surveyors of Kenya, stated:
“This action will have an impact on the cost of construction projects,
which are already burdened by the impacts of the pandemic and the global
crisis. The market already has too many approval requirements, which will make
project implementation more difficult.

Nashon
Okowa, chairman of the Association of Construction Managers, claims that the
fees have a little impact on construction costs.

“In
my personal opinion, the real cost of construction is in land, taxation, and
cost of construction,” he told the Star.

The
Kenya National Bureau of Statistics (KNBS) reports that building cost indices
increased by 7.5% from 104.23 in the fourth quarter of 2021 to 112.05 in the
first quarter of 2022, which is why developers are currently fighting an
increase in construction costs.

KNBS
director-general Macdonald Obudho states in the most recent update that
“this was mostly due to increases in the price of BRC wire mesh and steel
reinforcing bars, concrete, paving blocks, and cement.”

The
cost indices for civil engineering increased by 5.0% from 108.06 in the fourth
quarter of 2021 to 113.56 throughout the time period under consideration.

Notably,
the price increases of BRC wire mesh, steel reinforcement bars, bitumen
products, concrete products, and fuel products are to blame for the increase.

 In
the first quarter of 2022, there were also rises in the hiring of rollers and
excavators.

According
to KNBS, the overall construction cost index increased from 106.12 in the
fourth quarter of 2021 to 112.65 in the first quarter of 2022, an increase of
6.2%.

The
building cost indices, civil engineering costs, and overall construction costs
are all included in the construction input price indices.

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