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Kenyans may soon face higher costs at pharmacies, markets, and in their power bills if a series of proposed tax changes in the Finance Bill 2025 are approved by Parliament.
The National Treasury, led by Cabinet Secretary John Mbadi, is pushing to widen the tax base by withdrawing VAT zero-rating on several essential goods and services.
If the bill passes, sectors such as agriculture and healthcare could be among the hardest hit. The government is proposing to introduce a standard 16% VAT on goods that were previously zero-rated, including inputs for medicine and animal feed manufacturing, as well as sugarcane transportation.
Currently, zero-rated goods are taxed at 0%, allowing suppliers to claim back VAT on their purchases and sell products tax-free to consumers. If the proposed changes go through, businesses will lose this benefit, leading to higher costs that are likely to be passed on to consumers.
The proposed VAT changes also extend to clean energy products. Despite earlier commitments to promote sustainable energy, the new bill would impose a 16% VAT on electric bicycles, solar and lithium batteries, and electric buses. Similarly, the manufacturing and assembly of mobile phones, which were previously exempt, would also lose their zero-rated status.
This shift has raised concerns among environmentalists and investors in renewable energy. Critics argue that the move could undermine Kenya’s progress in promoting e-mobility and green technologies, potentially reversing strides made in the country’s climate agenda.
The government’s rationale behind these sweeping tax changes is primarily fiscal. By removing VAT exemptions, the Treasury aims to reduce its tax refund obligations, which have become a financial burden. Tax refunds to businesses dealing in zero-rated supplies have strained public finances, and the proposed changes are designed to alleviate this pressure.
However, critics argue that the government is targeting the wrong sectors. Many of the goods set to be taxed, such as food, medicine, and renewable energy components, are essential for daily life and not luxury items. Consumer advocates warn that the changes will drive up the cost of living, which is already a significant concern for many households.
Despite the tax hikes, the Cabinet insists that the goal is not to burden Kenyans with new taxes but to improve the efficiency of tax collection. A statement issued after Tuesday’s Cabinet meeting clarified that the Finance Bill is focused on reducing reliance on aggressive tax-raising measures and instead aims to streamline tax collection through legislative reforms.
