On 15 August 2023, the Cabinet Secretary for the National Treasury and Economic Planning published the proposed Public Procurement Capacity Building Levy Order, 2023 (the Proposed Order) and invited comments from members of the public. The Proposed Order seeks to introduce a levy of 0.03% of the contract value on signed contracts between a procuring entity and suppliers (the Levy) which the procuring entity is required to deduct when making the relevant payment under the contract to the supplier.

The Levy is to only apply to procurement contracts involving public entities. A public entity is defined in the Public Procurement and Asset Disposal Act, 2015 (the PPAD) to include the national government, a county government, a state corporation, a company owned by a public entity, a body in which the national or county government has a controlling interest, or any other entity as declared in the Public Finance Management Act, 2012 (the PFMA). Procurements not done under the PPAD are therefore exempt.  These include procurements done under the Public Private Partnership Act, 2013 or those under bilateral or multilateral agreements between the Government of Kenya and any other foreign governments, agencies, or multilateral agencies.

The Proposed Order raises some questions which have not been addressed such as:

1. Which contracts will the Levy apply to? It is not clear whether the Proposed Levy would apply to only contracts signed after the effectiveness of the Proposed Order, or it would extend to ongoing contracts which were signed before the effective date of the Proposed Order, but the procuring entity is still making periodic/instalment payments.
2. What costs can be deducted from the contract value? Contract value is not defined and the Proposed Order does not require the deduction of the levy to be pro-rated against each payment. Where the payment from the procuring entity is not a single lump sum, the question becomes which instalment/periodic payment(s) the levy should be deducted against. Further clarity is also required on if the levy is to be adjusted in the event the price payable under a contract is adjusted after signing.
3. Who is a development partner under the PPAD? Under the Proposed Order, contracts that are fully financed by development partners would be exempt from the levy. The only available definition of the term ‘development partner’ is in the PFMA which defines the term as “a foreign government, an international organisation of states or any other organisation prescribed by regulations to be a development partner.” Ideally, we would expect this waiver to extend to all instances where the costs of the procurement or project are being financed by the private party.

The stated purpose of the Levy is to provide funds for training, technical support and mentoring of persons involved in the public procurement and asset disposal system as a means of capacity development through funds from the public procurement process which the Public Procurement Regulatory Authority estimates to, on the lower side, account for 10% of Kenya’s Gross Domestic Product (GDP). According to the Central Bank of Kenya, the GDP in 2022 was KES 9,851,329,000,000 (approx. USD 68,723,540,994). The government would therefore expect to collect at least KES 295,566,205 (approx. USD 2,061,706) from the Levy.  It will however be necessary to address some of the concerns raised herein for the efficient implementation of the levy.