NAIROBI – Kenyans may soon feel in a pinch if the proposed tax change in the 2025 financial bill sails through Congress, pharmacies, markets, and even the electricity bill.
Under Interior Secretary John Mbadi, the National Treasury Department is looking to expand its tax system by deriving VAT zero ratings from many important goods and services.
Among the biggest hits are the agriculture and health sectors. The Ministry of Finance proposes targeting previously zero-zero products, including manufacturing medicine and animal feed inputs, and the transport of sugar cane to standard 16% VAT.
Currently, zero-rated items are taxed at 0%, so suppliers can charge an input VAT and sell tax-free items to consumers. This profit is eliminated if the proposal passes, forcing the company to pass additional costs to the end user.
The proposal doesn’t spare clean energy either. Despite previous commitments to promote sustainable transport, the new bill introduces 16% VAT on electric bicycles, solar power, lithium batteries and electric buses. The manufacturing and assembly of previously shielded mobile phones is also set to lose zero-rated status.
This obvious U-turn on electronic mobility and renewable energy threatens to reverse the profits made on the Kenya climate agenda, raising concerns among environmentalists and green technology investors.
Behind the drastic change is deeper financial motivation. By reducing zero-rated supplies, the government hopes to reduce tax refund obligations, often costly burdens.
Tax refunds to companies handling zero-rated supply burden the Treasury resources, and the proposed measures aim to curb this.
However, critics argue that the government is targeting the wrong sector. Many of the items set to be taxed on food, medicine and renewable energy components are essentials rather than luxury.
Consumer advocates warn that this move will inflate the cost of living when most households are already thinning.
Despite the tax optics, cabinets argue that it is not to burden Kenyans with new taxes, but to streamline their tax collection.
“The bill aims to reduce reliance on aggressive tax measures, and instead focuses on improving efficiency through legislative reform,” read a statement issued after Tuesday’s Cabinet meeting.
