MPs defend 2023 tax reforms, oppose new VAT proposals
The Finance Committee said the proposed changes would reverse gains made under the 2023 law and harm consumers.
The National Assembly’s Finance and Planning Committee has rejected a proposal by the National Treasury to raise Sh30 billion through the removal of tax benefits extended to businesses, dealing a major setback to the government’s plan to boost revenue without imposing new taxes in the Finance Bill 2025.
In its proposal, the Treasury had planned to change the VAT status of seven specific products from zero-rated to exempt.
These included locally assembled and manufactured mobile phones, electric bicycles, electric buses under tariff heading 87.02, and motorcycles under tariff heading 8711.60.00.
Also on the list were solar and lithium-ion batteries, inputs used in the production of animal feeds, and bioethanol vapor stoves classified under HS Code 12.00.
The shift would have meant businesses selling these items could no longer reclaim input VAT, increasing their production costs and likely resulting in higher prices for consumers.
But the committee argued that the zero-rated status had only recently been granted through the Finance Act 2023 and was intended to support local industries and keep essential goods affordable.
“The committee noted that these supplies were only recently moved to zero-rated status under the Finance Act, 2023, as part of efforts to support local industries and reduce the cost of essential goods,” reads the report.
According to the committee, reversing the decision would not only disrupt the tax system but also put pressure on both businesses and consumers.
“Therefore, reverting them to exempt status would undermine the objectives of that reform and introduce uncertainty into the tax framework. Such a change could increase production costs, costs likely to be passed on to consumers, ultimately discouraging investment and hindering economic growth,” it added.
The proposal’s rejection is expected to reduce the government’s projected collections under the bill, as it seeks to avoid unrest similar to last year’s protests over steep tax hikes.
In 2024, the government had aimed to raise Sh314 billion through a Finance Bill that included tax measures worth Sh346 billion. The public response was fierce, resulting in deadly protests and the eventual withdrawal of the bill.
