THE SPECIAL ECONOMIC ZONES (AMENDMENT) BILL, 2026
Proposed
New 'Oil and Gas Zones' Established
The Bill expands the types of Special Economic Zones (SEZs) by adding "midstream petroleum operations zones" and "upstream petroleum operations zones" to Section 4(6) and the First Schedule of the Special Economic Zones Act (Cap. 517A). This allows the establishment of SEZs specifically for oil and gas activities.
10-Year Minimum Licence for Petroleum SEZs
A new Section 27(5A) is inserted into the Special Economic Zones Act (Cap. 517A), stipulating that a licence issued to a special economic zone developer, operator, or enterprise for midstream or upstream petroleum operations will be valid for a minimum period of ten years. This differs from other SEZ licences, which are valid for a period prescribed by the Authority.
Annual Audits and Fees for SEZ Entities
The Bill introduces a new requirement under Section 27(5B) of the Special Economic Zones Act (Cap. 517A) for the Authority to conduct annual audits of special economic zone developers, operators, or enterprises. These audits will ensure compliance with licence terms and conditions, and the audited entities will be required to pay prescribed annual audit fees to the Authority.
Relaxed Incorporation Requirements for SEZ Enterprises
Amendments to Sections 28(a) and 29(2)(a) of the Special Economic Zones Act (Cap. 517A) remove the requirement for special economic zone developers and enterprises to be "incorporated in Kenya." Instead, the Bill stipulates that they must be a "company," allowing both locally and foreign-incorporated companies registered in Kenya to qualify.
Extended Tax Incentives for Petroleum SEZ Activities
The Bill includes consequential amendments to other tax laws:
- Paragraph 73 of Part I of the First Schedule of the Income Tax Act (Cap. 470) is amended by deleting the phrase "in the first ten years of its establishment," which likely removes a time limit on certain tax benefits.
- The Second Schedule, Part B, of the Miscellaneous Fees and Levies Act (Cap. 469C) is amended to exempt goods destined for SEZs designated for midstream or upstream petroleum operations from the Railway Development Levy.
About This Bill
This Bill amends the Special Economic Zones Act (Cap. 517A) to expand the scope of Special Economic Zones to include midstream and upstream petroleum operations. It introduces a minimum ten-year validity period for licences issued for these petroleum-related activities and mandates annual audits for compliance. The Bill also makes consequential amendments to the Income Tax Act, Value Added Tax Act, and Miscellaneous Fees and Levies Act to align fiscal incentives with the expanded SEZ regime.
Bill No.
—
Gazette No.
Supplement No. 53 of 2026
Sponsor
Kimani Ichung'wah
Background
This Bill, officially titled The Special Economic Zones (Amendment) Bill, 2026, aims to modify the Special Economic Zones Act (Cap. 517A). The primary objective is to strengthen the Special Economic Zones (SEZ) framework and align it with the operational requirements of large-scale capital investments, particularly those in midstream and upstream petroleum operations. The Bill seeks to implement recommendations from a Joint Committee of the National Assembly and Senate concerning the extension of the SEZ legal and regulatory regime and fiscal incentives to the petroleum sector, following proposals adopted by Parliament on 25th February, 2026. It is intended to facilitate strategic investments and address gaps in the existing legal framework to support oil discoveries and exploration in areas like the Lokichar Basin.
Key Amendments
- Amendment to Section 2 of Cap. 517A: New definitions for "midstream petroleum operations" and "upstream petroleum operations" are inserted, aligning them with meanings provided in the Petroleum Act.
- Amendment to Section 4 of Cap. 517A: Subsection (6) is amended to include "midstream petroleum operations zones" and "upstream petroleum operations zones" among the types of areas that can be declared as special economic zones.
- Amendment to Section 27 of Cap. 517A:
- Subsection (5)(d) is replaced, stating that licences will be valid for a period prescribed by the Authority, subject to new subsection (5A).
- A new subsection (5A) is inserted, mandating that licences for SEZ developers, operators, or enterprises undertaking midstream or upstream petroleum operations shall be valid for a minimum period of ten years.
- A new subsection (5B) is inserted, requiring the Authority to conduct annual compliance audits for SEZ entities and for these entities to pay prescribed annual audit fees.
- Amendment to Section 28 of Cap. 517A: Paragraph (a) is amended to remove the requirement for a special economic zone developer to be "incorporated in Kenya."
- Amendment to Section 29 of Cap. 517A:
- Subsection (2)(a) is amended by replacing "is incorporated in Kenya" with "is a company," broadening eligibility.
- A new subsection (3) is inserted, allowing SEZ developers or operators involved in, or intending to be involved in, midstream or upstream petroleum operations to apply for an SEZ enterprise licence.
- Amendment to the First Schedule of Cap. 517A: A new paragraph is added to include "oil and gas zones" as a type of special economic zone.
Consequential Amendments to Other Acts
- Income Tax Act, Cap. 470: Paragraph 73 of Part I of the First Schedule is amended by deleting the expression "in the first ten years of its establishment," which pertains to certain benefits.
- Value Added Tax Act, Cap. 476: Second Schedule, Part A, paragraph 12 is amended to insert "developer, operator or" after the expression "special economic zone."
- Miscellaneous Fees and Levies Act, Cap. 469C: Second Schedule, Part B, is amended by inserting a new paragraph (xix) to include "goods destined for approved Export Processing Zones or Special Economic Zones designated for midstream petroleum operations or upstream petroleum operations" for exemption from the Railway Development Levy.
New Obligations
Special economic zone developers, operators, or enterprises involved in midstream or upstream petroleum operations are now subject to:
- Annual audits by the Authority to ensure compliance with licence terms and conditions.
- Payment of prescribed annual audit fees to the Authority.
Penalties
The bill does not explicitly introduce new penalties above KSh 1 million or new forms of penalties.
Transitional Provisions
The bill does not explicitly contain transitional provisions regarding existing licences or operations.
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