The National Treasury, under Cabinet Secretary John Mbadi, is looking to widen the tax net by withdrawing VAT zero-rating from a number of essential goods and services.
Among the hardest hit would be the agriculture and health sectors. The Treasury is proposing to subject previously zero-rated goods—such as inputs for manufacturing medicine and animal feed, and the transportation of sugarcane to the standard 16% value-added tax.
Currently, zero-rated items are taxed at 0%, allowing suppliers to claim input VAT and sell goods tax-free to consumers. This benefit would be eliminated if the proposals pass, forcing businesses to pass on the additional costs to end-users.
The proposals don’t spare clean energy either. Despite earlier commitments to promote sustainable transportation, the new Bill introduces 16% VAT on electric bicycles, solar and lithium batteries, and electric buses. The manufacturing and assembly of mobile phones previously shielded are also set to lose their zero-rated status.
This apparent U-turn on e-mobility and renewable energy threatens to reverse gains made in Kenya’s climate agenda, raising concerns among environmentalists and investors in green technologies.
Behind the sweeping changes lies a deeper fiscal motive. By cutting down on zero-rated supplies, the government hopes to reduce its tax refund obligations an often costly burden on the exchequer.
Tax refunds to businesses dealing in zero-rated supplies have strained the Treasury’s resources, and the proposed measures aim to curb this.
However, critics argue the government is targeting the wrong sectors. Many of the items set to be taxed food, medicine, and renewable energy components are not luxuries, but necessities.
Consumer advocates warn that the move will inflate the cost of living at a time when most households are already stretched thin.
Despite the tax-heavy optics, the Cabinet insists the goal is not to burden Kenyans with new levies but to streamline tax collection.
“The Bill seeks to reduce reliance on aggressive tax-raising measures and instead focuses on improving efficiency through legislative reforms,” read a statement issued after Tuesday’s Cabinet meeting.
