Continued from Tax Alert: Issue 1, in this issue we cover the following sectors:- E-mobility, Transport & Aviation, Manufacturing, Heavy Industry & Scrap Metal , Gaming, Betting & Lotteries, Specialized sectors and Cross Industry Impacts.
Sector 5: E-Mobility, Transport & Aviation
The Finance Bill 2026 reveals a highly polarized, “carrot-and-stick” tax strategy for the transport and logistics sector. On one hand, the Treasury is proposing massive commercial advantages for green energy and aviation. By stripping away Value Added Tax (VAT) on electric buses and e-bicycles, and dismantling port levies for aircraft and aviation spares, the government is deliberately incentivizing the decarbonization of transit and aggressively positioning Nairobi as the premier aviation maintenance hub in East Africa.
On the other hand, the Kenya Revenue Authority (KRA) is tightening the screws on maritime logistics and luxury wealth. By proposing a punitive five-day tax remittance window for foreign ships and slapping a 50% excise duty on high-net-worth antique vehicles, the KRA is prioritizing immediate cash extraction from legacy logistics and luxury imports.
ANALYSIS
Accelerating the E-Mobility Transition(First Schedule to the Value Added Tax Act)
The Proposed Shift & Rationale: The Bill proposes to amend the First Schedule to the VAT Act to explicitly exempt the supply of electric bicycles, electric buses of tariff heading 87.02, and motorcycles of tariff heading 8711.60.00 from VAT. This aims to lower capital expenditure for green transit, stimulate local assembly, and reduce fossil-fuel dependency.
The Commercial Exposure: This represents a monumental commercial tailwind for the green tech sector. If this proposal passes, e-mobility startups, electric bus assemblers, and green-transit investors would gain an immediate 16% pricing advantage over traditional combustion-engine competitors, significantly shortening the payback period for electric commercial fleets.
Recommended actions: E-mobility operators and fleet managers should prepare to remodel their pricing structures and total-cost-of-ownership (TCO) pitches to reflect the proposed VAT savings. Procurement teams should aggressively target public service vehicle (PSV) operators looking to transition to electric fleets before the market saturates.
Bolstering the Aviation Hub (First Schedule to the Value Added Tax Act; Second Schedule to the Miscellaneous Fees and Levies Act.)
The Proposed Shift & Rationale: The Bill proposes to expand import exemptions to cover all parts of Chapter 88 and goods of tariff headings 8802.30.00 and 8802.40.00 (aeroplanes of certain weights), relieving them from both the Import Declaration Fee (IDF) and the Railway Development Levy (RDL). Concurrently, it broadens the VAT exemption by replacing “any other aircraft spare” with the word “aircraft”. The strategic intent is to lower the exorbitant importation and maintenance costs for local airlines, removing port-of-entry bottlenecks to position Kenya as a highly competitive hub.
The Commercial Exposure: Airlines, charter operators, and aviation maintenance firms will potentially experience a drastic drop in their capital expenditures and operational expenditures when importing complete aircraft and major spares, heavily easing cash-flow friction at the border.
Recommended actions: Airline CFOs and procurement directors should urgently review their capital expenditure pipelines. Where commercially viable, defer the importation of major aircraft and high-value capital spares until these exemptions legally take effect to maximize cash-flow retention.
The Maritime Compliance Squeeze(Section 9 of the Income Tax Act)
The Proposed Shift & Rationale: For non-resident ship owners, the Bill proposes that the tax charged on income derived from carrying passengers or cargo from Kenya must be paid within five days after the payment is received, or before the ship leaves the port of lading, whichever is earlier. This is a defensive, anti-flight mechanism designed to cure the KRA’s historical inability to recover taxes from foreign vessels once they sail beyond Kenyan jurisdictional waters.
The Commercial Exposure: This creates severe cash-flow and logistical friction for local shipping agents and foreign maritime operators. Failing to clear the KRA liability in real-time before the ship sails will likely trigger immediate customs clearance blockages, leading to paralyzing costs and global schedule disruptions.
Recommended actions: Shipping agencies and maritime logistics firms must completely overhaul their financial settlement processes. Establish rapid-response tax remittance protocols with local banks to ensure KRA liabilities are cleared instantly upon cargo payment, guaranteeing uninterrupted vessel departures, once the proposal passes..
Taxing the Ultra-Wealthy: Antique & Classic Vehicles (Section 2 and the First Schedule to the Excise Duty Act)
The Proposed Shift & Rationale: The Bill seeks to introduce a strict statutory definition for an “antique, vintage or classic vehicle” as a motor vehicle registered at least thirty years prior to purchase and valued at a minimum of ten million shillings, exclusive of depreciation. It subsequently imposes a staggering 50% Excise Duty on these vehicles. The Treasury is actively targeting high-net-worth individuals importing luxury collectibles, treating them as prime, price-inelastic targets for revenue extraction.
The Commercial Exposure: Higher landed costs for vintage collectibles would stifle the luxury imports market, squeezing margins for bespoke dealers and wealth managers catering to the ultra-wealthy.
Recommended actions: Auto dealers should expedite the purchase and customs clearance of any pending classic vehicle imports to ensure they touch down and clear customs before the Act comes into force.
The $2,000 Passenger Baggage Win (Clause 32)
The Proposed Shift & Rationale: In a massive consumer-friendly move, the Bill seeks to amend Paragraph 99(i) of the VAT Act’s First Schedule. It raises the tax-free allowance for goods imported in accompanied passenger baggage from a mere USD 300 to USD 2,000.
The Commercial Exposure: This eliminates the severe friction and harassment arriving passengers historically faced at Jomo Kenyatta International Airport (JKIA) over personal electronics, clothing, and shopping. It provides a massive sigh of relief for frequent flyers and diaspora residents bringing items home.
Recommended actions: Airlines and travel agencies should prepare to market this USD 2,000 tax-free allowance as a major perk to drive retail tourism and inbound flight bookings.
Sector 6: Manufacturing, Heavy Industry & Scrap Metal
The Finance Bill 2026 outlines a radical restructuring of the tax framework governing industrial raw materials, regional supply chains, and the circular economy. For the manufacturing sector, the Treasury is wielding a double-edged sword: erecting strong protectionist excise walls against cheap regional imports to defend local manufacturers, while simultaneously taxing critical energy inputs like coal and industrial plastics.
Meanwhile, the Kenya Revenue Authority (KRA) is completely overhauling the taxation of the highly informal scrap metal industry by abandoning the fraud-prone Value Added Tax (VAT) mechanism in favor of a direct Withholding Tax (WHT) dragnet. For industrial CEOs, Chief Supply Chain Officers, and Plant Managers, this Bill requires an urgent recalibration of regional procurement strategies and a major update to supplier payment systems.
ANALYSIS
The Scrap Metal Landscape (Section 10, Section 35, and the Third Schedule to the Income Tax Act; First Schedule to the Value Added Tax Act)
The Proposed Shift & Rationale: The Bill proposes a genius, two-pronged strategy to regulate the notoriously informal scrap metal sector. First, it amends the VAT Act to explicitly exempt scrap metal from VAT. Second, it amends the Income Tax Act to introduce a 1.5% Withholding Tax on the gross sale value of scrap metal for both residents and non-residents. The rationale is purely anti-fraud and base-broadening. By exempting scrap metal from VAT, the KRA shuts down the rampant pipeline of fictitious VAT refund claims in the scrap supply chain. Concurrently, the 1.5% WHT forces large, formal smelters and recyclers to act as tax collection agents, bringing thousands of informal scrap dealers into the income tax net.
The Commercial Exposure: Heavy industries, steel mills, and recyclers that purchase scrap metal will permanently lose the ability to claim input VAT on these raw materials. However, their primary exposure is compliance: failing to deduct and remit the 1.5% WHT from informal suppliers will transfer the primary tax liability directly onto the manufacturer, backed by severe penalties.
Recommended actions: Purchasers should prepare to automatically deduct the 1.5% WHT on all scrap metal purchases. Simultaneously, supply chain teams must communicate this impending deduction to informal suppliers to prevent supply shocks.
Dismantling the EAC Excise Exemption (First Schedule to the Excise Duty Act)
The Proposed Shift & Rationale: The Bill proposes a massive shift in regional trade policy by deleting the phrase “excluding those originating from East African Community Partner States” across multiple excise categories. This effectively imposes Excise Duty on imported glass bottles, printed paper, labels, cartons, plastics, and furniture coming from the EAC. The Treasury is actively leveling the playing field to protect domestic manufacturers from being undercut by cheaper imports flooding the market under the guise of the EAC Rules of Origin.
The Commercial Exposure: Fast-Moving Consumer Goods (FMCG) companies, bottlers, and manufacturers who rely on cross-border supply chains (such as importing glass bottles or packaging cartons from Tanzania or Uganda) will face an immediate, unmitigated spike in their Cost of Goods Sold (COGS).
Recommended actions: Supply chain directors must immediately run scenario analyses on their regional procurement costs. If the landed cost of EAC-sourced packaging (inclusive of the new excise duty) exceeds local alternatives, manufacturers must aggressively pivot to domestic suppliers to protect their profit margins.
The Carbon and Plastics Penalty (First Schedule to the Excise Duty Act)
The Proposed Shift & Rationale: The Bill proposes to impose a 5% Excise Duty on Coal and a 10% Excise Duty on specific imported articles of plastic (tariff headings 3923.30.00 and 3923.90.90). This aligns with the government’s broader environmental agenda to penalize heavy carbon emitters and discourage the use of non-biodegradable industrial plastics, driving industries toward greener alternatives.
The Commercial Exposure:Cement manufacturers, steel mills, and heavy industries that rely heavily on coal to fire their kilns and furnaces will potentially suffer a direct 5% Operational expenditure hit. Similarly, manufacturers reliant on specific imported plastic articles for industrial packaging will likely see their overheads inflate.
Recommended actions: Plant Managers and heavy industry executives must remodel their energy expenditure forecasts to absorb the 5% tax on coal. Where possible, accelerate Capital expenditure investments into alternative biomass or green-energy kilns to mitigate this new, permanent baseline cost.
Clean Energy Manufacturing Incentives (First Schedule to the Value Added Tax Act.)
The Proposed Shift & Rationale: In a bid to counterbalance the penalties on fossil fuels, the Bill proposes to exempt Bioethanol Vapor (BEV) Stoves from VAT. The Treasury is strategically incentivizing the local manufacture and mass adoption of clean cooking technologies to replace kerosene and charcoal.
The Commercial Exposure: This presents a highly lucrative commercial window for light manufacturing. Producers and distributors of BEV stoves gain a 16% pricing advantage in the consumer market, driving volume growth.
Recommended actions: Once passed, Manufacturers operating in the clean energy space should aggressively scale up their production and marketing of BEV stoves, leveraging the 16% price drop to capture market share from traditional charcoal and kerosene stove competitors the moment the Bill passes.
Lifting the Suspension on Steel Import Duties (Clause 40)
The Proposed Shift & Rationale:The Bill seeks to repeal Section 6A(4) of the Tax Procedures Act, which previously suspended import duties on imported steel billets and wire rods.
The Commercial Exposure:This is a massive hit to the steel manufacturing sector. The suspension of import duties would mean that the cost of importing raw steel billets and wire rods will immediately spike, driving up the cost of local steel manufacturing and construction.
Recommended actions: Steel millers and construction contractors must urgently rework their procurement budgets and project pricing models to absorb the reinstated import duties on steel billets.
Protectionist Taxes on Ceramic Sanitary Ware (Clause 37)
The Proposed Shift & Rationale: The Bill seeks to introduce a new Excise Duty of 5% of the excisable value or Kes 50 per kilogram (whichever is higher) on imported ceramic sinks, wash basins, and similar sanitary fixtures.
The Commercial Exposure: This is a classic protectionist move designed to shield local ceramic manufacturers from cheap foreign imports. Importers of sanitary ware and real estate developers relying on imported finishings will see an immediate spike in their landed costs.
Recommended actions: Real estate procurement teams should pivot to sourcing sanitary fixtures from local ceramic manufacturers to avoid the new border penalty and protect project margins.
Sector 7: Gaming, Betting & Lotteries
The Finance Bill 2026 signals a ruthless optimization of tax collection within the betting and gaming ecosystem. The Treasury is systematically closing semantic loopholes that operators have historically utilized to shield non-digital stakes from Excise Duty, while simultaneously codifying a watertight 20% Withholding Tax (WHT) regime on punters’ payouts. By linking these definitions to the Gambling Control Act 2025, the KRA proposes a dual-tax system: taxing stakes upon entry and profits upon withdrawal.
For operators, the compliance burden of tracking and withholding taxes across physical chips, tokens, and digital platforms will demand immediate, heavy technological upgrades.
ANALYSIS
The 20% WHT on Winnings (Section 2, 10, 35, and the Third Schedule to the Income Tax Act)
The Proposed Shift & Rationale: The Bill proposes strict, modernized definitions for “withdrawals” and “winnings,” legally binding them to the Gambling Control Act of 2025. It explicitly classifies winnings as taxable income and subjects them to a punitive 20% Withholding Tax. Crucially, the Bill defines winnings as the payout excluding the original amount staked. The Treasury’s rationale is to clear up historical litigation and ambiguity, ensuring that every shilling of net profit extracted by a punter is taxed at the source before it hits their bank account.
The Commercial Exposure: Betting operators will be deputized as mandatory tax collection agents for the KRA should this pass. Because payouts to consumers will shrink by 20%, operators risk a temporary suppression of punter velocity and overall platform volume. More critically, the failure to accurately compute, deduct, and remit this WHT exposes the operator to severe principal tax recovery demands, compounded by late payment penalties.
Recommended actions: Finance Directors must urgently re-engineer their platform algorithms to automatically separate the initial staked wager from the pure “winnings.” Systems must be upgraded to calculate the 20% WHT in real-time and seamlessly deduct it prior to authorizing any customer withdrawal.
Closing the “Wallet” Loophole for Excise Duty (First Schedule to the Excise Duty Act)
The Proposed Shift & Rationale: The Treasury proposes to delete the restrictive phrase “amount deposited into a customer’s betting wallet” and replace it with a massively expanded definition of “amount deposited”. This new definition captures any money, cash equivalent, chips, tokens, credits, or tickets made available for gambling, regardless of whether it is held in a digital account. The rationale is to close a massive, historical loophole where physical casinos and cash-based bookmakers easily evaded the Excise Duty that digital platforms were forced to pay.
The Commercial Exposure: This completely levels the playing field but brings severe compliance friction to physical casinos and retail betting shops. Retail operators can no longer accept cash over the counter or issue casino chips without instantly accounting for the underlying Excise Duty. This permanently squeezes the margins on physical operations that previously flew under the digital radar.
Recommended actions: Casino operators and retail betting franchises must completely overhaul their point-of-sale (POS) systems and cage cashier protocols. Pricing models for physical chips and over-the-counter stakes must be recalibrated to account for the upfront excise duty before the wager is officially logged into the ledger.
Sector 8: Specialized Sectors & Cross-Industry Impacts
Beyond the major macroeconomic shifts, the 2026 Finance Bill deploys highly surgical legislative amendments to fundamentally alter specific micro-economies. From formalizing the multi-billion-shilling informal mitumba trade with an inescapable border tax, to aggressively incentivizing local agribusiness, healthcare manufacturing, and green energy, the Treasury is picking structural winners and losers.
For C-suite leaders operating in these specialized verticals, a single clause in this Bill carries the weight to entirely reshape their supply chains, pricing models, and compliance frameworks.
ANALYSIS
Formalizing the ‘Mitumba’ Market (Clauses 10, 32)
The Proposed Shift & Rationale: The Bill proposes to extract tax directly at the border by imposing a final 5% income tax on the presumed profit (calculated at 5% of the customs value) of imported worn clothing and footwear. Concurrently, it exempts domestic sales of these items from VAT. The KRA is effectively giving up on auditing thousands of informal hawkers and instead forcing the large-scale importers to pay a guaranteed, upfront income tax before the bales leave the port.
The Commercial Exposure: Large-scale importers and consolidators face an immediate, unrecoverable cash-flow hit at the port of entry, permanently elevating the landed cost of second-hand retail goods.
Recommended actions: Importers must urgently provision for this final upfront tax in their working capital forecasting. Wholesalers must adjust downstream pricing models to absorb this border tax before distributing inventory to the informal retail network.
Clean Energy & Mining (Clauses 32, 37)
The Proposed Shift & Rationale: The Treasury is heavily steering the energy sector. It proposes to exempt solar/lithium-ion batteries and Bioethanol Vapor (BEV) stoves from VAT to drive down Capital Expenditure for off-grid renewables. Conversely, it imposes a 5% Excise Duty on coal, directly penalizing heavy carbon emitters.
The Commercial Exposure: Renewable energy contractors and clean-stove manufacturers gain an instant 16% pricing advantage. However, heavy industries and mining operations that rely on coal for kilns and furnaces will suffer a permanent 5% operational expenditure spike.
Recommended actions: Solar EPC contractors should re-price pending off-grid project bids to reflect VAT savings and capture market share. Plant Managers relying on coal must remodel their energy expenditure forecasts to absorb the 5% tax and accelerate investments into alternative biomass.
Agriculture & Agribusiness (Clause 32)
The Proposed Shift & Rationale: The Bill proposes to explicitly exempt inputs and raw materials used in the manufacture of animal feeds, as well as the transportation of sugarcane from farms to millers, from VAT. The rationale is to shield the fragile agribusiness supply chain from inflationary logistics and input costs, thereby protecting national food security.
The Commercial Exposure: This generates massive, targeted cost relief. Sugar millers and animal feed producers secure a direct 16% Operational expenditure drop on their most critical transport and raw material inputs.
Recommended actions: Sugar millers and feed producers must urgently audit their out grower procurement, and transport contracts to ensure the 16% logistics and input cost reductions are accurately passed down by their suppliers.
Healthcare & Medical (Clause 32)
The Proposed Shift & Rationale: The Bill proposes to exempt dialyzers, human/animal blood products, and imported raw materials for pharmaceutical manufacturing (subject to the Ministry of Health’s recommendation) from VAT. The strategy is to lower the exorbitant cost of critical renal care while aggressively incentivizing multinational pharmaceutical companies to establish local manufacturing plants rather than importing finished drugs. Furthermore, the Bill deletes Paragraph 153, stripping away the VAT exemptions for materials and services used in the construction and equipping of specialized hospitals.
The Commercial Exposure: While locally manufactured drugs gain a pricing edge, the revocation of construction exemptions represents a brutal blow to healthcare infrastructure. Investors building specialized medical facilities face an immediate 16% capital expenditure spike on construction and high-tech medical equipment.
Recommended actions: Pharmaceutical manufacturers should prepare to align their procurement and legal teams with the Ministry of Health to secure the statutory approvals required to clear their raw material import pipelines tax-free the moment the Bill is enacted.
Tourism & Hospitality (Clause 32)
The Proposed Shift & Rationale: The Bill seeks to tighten the definitions of “tour operator” and “in-house supplies” within the VAT Act. The rationale is purely anti-abuse: the KRA wants to stop hotels from masquerading standard, taxable hotel services (like dining and accommodation) as exempt, all-inclusive “tour packages.” Furthermore, the Bill repeals the VAT exemptions previously granted for materials and services used in the construction of tourism facilities, convention centers, and recreational parks.
The Commercial Exposure: While seemingly administrative, this cleanup eliminates legal grey areas. Aggressive KRA VAT audits will almost certainly follow to catch hotels improperly claiming VAT exemptions on “in-house” tour operations.
Recommended actions: Hospitality and lodge directors must immediately audit their packaged tours and invoicing systems, ensuring that taxable hotel services are strictly and legally segregated from VAT-exempt external tour operations.
Insurance (Clause 15)
The Proposed Shift & Rationale: The Bill proposes to execute a highly technical cleanup in the Income Tax Act, replacing the outdated term “life insurance fund” with “statutory fund” (as established under Section 45 of the Insurance Act) for tax computation purposes.
The Commercial Exposure: This aligns tax law with current insurance regulatory frameworks, removing computational ambiguities regarding what qualifies as a ring-fenced fund for life insurance tax assessments.
Recommended actions: Insurance CFOs and actuaries must ensure their corporate tax computation templates are perfectly aligned with the statutory fund reports submitted to the Insurance Regulatory Authority (IRA).
Food, Beverage & Tobacco (FMCG) (Clause 37)
The Proposed Shift & Rationale: The Bill seeks to introduce a tiered, health-driven excise duty for fruit juices, proposing KES 20 per litre for juices containing added sugar, and KES 14.14 per litre for unsweetened juices. Additionally, it spikes the excise duty on cigars to KES 18,000 per kilogram. Crucially, it introduces a severe Excise Duty of KES 80 per litre on Extra Neutral Alcohol (ENA), the primary raw material used by distillers to manufacture spirits.
The Commercial Exposure: Beverage manufacturers face an aggressive margin squeeze across the board. Distillers of spirits and liquors, in particular, will suffer a massive, unmitigated spike in their baseline manufacturing costs due to the new KES 80 per litre tax on raw ENA.
Recommended actions: FMCG pricing directors must urgently remodel Stock Keeping Unit (SKU) pricing. For beverages, explore accelerating the rollout of zero-sugar alternatives to benefit from the lower excise tier; for tobacco, model price elasticity to determine how much of the tax hike can be passed to consumers without destroying volume.
Security & Defense (Clause 38)
The Proposed Shift & Rationale: The Bill proposes to insert the “National Intelligence Service” (NIS) alongside the Kenya Defense Forces (KDF) into the Second Schedule of the Excise Duty Act. This extends elite, blanket excise exemptions to the NIS.
The Commercial Exposure: This is a localized administrative shift that allows the intelligence apparatus to procure goods and equipment free of excise duty, lowering the cost of national security infrastructure.
Recommended actions: Government contractors and defense suppliers bidding for NIS tenders must adjust their pricing and invoicing models to strip out excise duty, ensuring their bids remain strictly compliant and competitive under the new exempt status.
Discrepancies Between the Green Copy and the Circulating Draft
We currently have two circulating drafts of the Finance Bill 2026. To clear up any confusion, we have conducted a rigorous line-by-line analysis of both documents. While the “Green Copy” is the official version, the alternative draft circulating in the public domain contains several substantive differences. Although the vast majority of the text is identical, the following comparative analysis outlines the exact discrepancies found between the two documents.
Comparative Analysis
When comparing the Green Copy to the circulating draft, the first major discrepancy appears in the commencement dates and income tax proposals. The Green Copy stipulates that the bulk of the provisions will commence on July 1, 2026, whereas the circulating draft pushes this general commencement date to July 1, 2027.
Secondly, under Income Tax, the circulating draft introduces a new section (Section 12H) which imposes a 5% tax on the customs value of imported worn clothing and footwear, commonly known as “mitumba”. The Green Copy completely omits this mitumba income tax proposal. Nevertheless, it retains the VAT exemption.
Regarding Excise Duty, the circulating draft amends the definition of an “import” to specifically exclude goods originating from East African Community (EAC) Partner States that meet the EAC Rules of Origin, a provision missing from the Green Copy.
Furthermore, the circulating draft amends the Second Schedule of the Excise Duty Act to grant tax exemptions to the National Intelligence Service alongside the Kenya Defense Forces, an addition that the Green Copy does not include.
Finally, there are noticeable differences regarding levies and tax procedures. The circulating draft explicitly updates the definition of “East African Community Partner States” under the Miscellaneous Fees and Levies Act and deletes subsection (4) of Section 6A in the Tax Procedures Act. The Green Copy skips both of these administrative amendments.
Conversely, the Green Copy includes a dedicated section (Part VIII) that proposes reducing the Road Maintenance Levy from three shillings to one shilling and fifty cents. This proposed reduction to the road levy is completely absent from the circulating draft.
Everything else is the same.
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Disclaimer & Legal Notice
This tax alert is based on the initial Finance Bill 2026 that is circulating as of 30th April 2026 and is not the final enacted.The proposed clauses, tax rates, and administrative shifts are strictly proposals subject to amendment or deletion during parliamentary debates. Furthermore, this document is prepared by Ithera Africa for general informational and strategic planning purposes only and does not constitute formal tax, legal, or financial advice. Ithera Africa assumes no liability for any commercial or operational decisions made relying on this publication; we strongly advise consulting your dedicated tax and legal professionals to assess the specific impact on your business before executing any transactions.
