The Finance Bill, 2026, has proposed sweeping amendments to Kenya’s Value Added Tax (VAT) regime by expanding tax exemptions for key sectors.
The Bill introduces a wide list of goods to be tax-exempt or zero-rated, targeting health, agriculture, manufacturing, renewable energy, transport, telecommunications, and infrastructure.
Finance Bill 2026 Changes
Under amendments to the Value Added Tax Act (Cap. 476), the National Treasury has proposed the addition of a wide range of items to the VAT exemption list.
These include dialyzers used in kidney treatment, scrap metal, and inputs or raw materials for the manufacture of animal feeds and pharmaceutical products, subject to approval by the Cabinet Secretary on recommendation from the relevant implementing ministry.
Other exemptions include the transportation of sugarcane from farms to milling factories, the supply of imported or locally purchased telephones for cellular and wireless networks, motorcycles, electric bicycles, solar and lithium-ion batteries, electric buses, and bioethanol vapor (BEV) stoves.
The Bill also exempts worn clothing and other used clothing items supplied locally, but excludes imported second-hand clothing from the exemption.
In addition, goods for direct and exclusive use in the implementation of infrastructure projects under public-private partnership (PPP) frameworks will be exempt, subject to approval by the Cabinet Secretary on the recommendation of the relevant implementing ministry.
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Exemptions for Core Money Transfers
In financial services, the Bill maintains VAT exemption for the issue, transfer, and receipt of money, including money transfer services and over-the-counter bill payments.
However, it excludes cash-handling services such as cash carriage, ATM restocking, and sorting and counting.
It also excludes digital payment services such as payment processing, settlement, merchant acquiring, gateways, and aggregation services supplied via software or platforms by payment service providers for a fee or commission.
Also Read: Kenya Tax Bill 2026 Tightens Capital Gains Tax Exemptions Rules
Tourism and Infrastructure Tax Adjustments
The Finance Bill, 2026, further introduces new definitions for tour operators and in-house supplies within the tourism sector.
It also provides for VAT exemptions on services used in public-private partnership (PPP) infrastructure projects, subject to the Cabinet Secretary’s approval.
In a major compliance reform, the Bill introduces a new Section 17A requiring businesses to adjust input tax where goods initially claimed under VAT become exempt while still unsold.
Businesses must account for the input tax in the tax period when the exemption takes effect, and any excess input tax must be paid to the Commissioner.
The Bill also extends the tax record-keeping period under Section 31 from 2 to 3 years, giving the Kenya Revenue Authority (KRA) a longer audit window.
Treasury Cabinet Secretary John Mbadi has finally submitted the much-awaited Finance Bill, 2026, which is expected to be debated in the coming weeks.
