Kenya Airways has received a major boost in its push for sustained profitability after the government granted it a tax exemption on payments made to foreign firms offering specialised services.

The exemption, included in the newly signed Finance Act 2025, relieves the national carrier from paying withholding tax on certain services sourced from abroad, especially those not available locally.

This development is expected to ease KQ’s operational costs, particularly in areas such as technical maintenance, compliance, training and digital system support.

According to the new law, “Section 35 of the Income Tax is amended— (a) in subsection (1) (i) in paragraph (a) by inserting the following new subparagraph immediately after subparagraph (ii)— (iii) payments made by the national carrier to a non-resident for specialised technical, maintenance, compliance, training, or digital systems support services, where such services are not available in Kenya or the service provider is certified or accredited by an international regulatory, standard-setting, or licensing body.”

Maintenance remains one of the most expensive parts of KQ’s operations, especially since the airline frequently depends on overseas specialists for complex tasks like engine overhauls.

Legal and tax experts say the move will improve the airline’s cost efficiency and relieve it from the burden of paying additional tax on top of professional fees.

“The exemption intends to lower the cost incurred by the national carrier in accessing specialised services not available in Kenya. This is because without such an exemption from withholding tax, the national carrier would be required to gross-up the fees paid for such specialised services, thus incur the withholding tax expense,” said Bowmans, a law firm, in a client note.

The airline has recently turned a financial corner, helped by a combination of a stronger shilling, improved cash flow, and lower debt in foreign currencies.

In 2024, KQ posted a net profit of Sh5.4 billion—its first full-year profit since 2012—reversing a massive loss of Sh22.6 billion in 2023. One of the key drivers of this turnaround was Sh1.2 billion in foreign exchange gains, a sharp shift from a Sh19 billion forex loss the year before.

The Kenyan shilling strengthened significantly during the period, closing the year at about 129 to 130 units against the US dollar, compared to Sh160 in January.

This appreciation helped KQ slash costs related to its dollar-denominated loans and aircraft leases.

The company also benefited from strong operational performance. Revenues grew to Sh188.4 billion in 2024, up from Sh178.4 billion the previous year. Passenger numbers hit a record 5.23 million, a 4 percent increase, while cargo volumes surged 25 percent to 70,776 tonnes, up from 56,576 tonnes.

The tax exemption under the Finance Act 2025 is likely to strengthen the airline’s efforts to maintain profitability by making it less costly to engage highly specialised foreign service providers.