MPs have rejected a proposal by the National Treasury to abolish the special 15 percent corporate income tax rate for local motor vehicle assemblers and developers constructing at least 100 residential housing units, citing the need for policy stability and long-term investment confidence.

The Finance and National Planning Committee of the National Assembly, chaired by Molo MP Kuria Kimani, said the Treasury’s move to return these investors to the standard 30 percent corporate tax was premature and risked undermining the very goals the incentive sought to achieve.

The incentive, introduced in 2023 and set to run for five years, was aimed at attracting large investors in local manufacturing and housing.

However, Treasury Cabinet Secretary John Mbadi argued that the incentive had not produced the desired outcomes, and thus no longer justified the preferential treatment. The CS pointed to declining performance in both sectors as a basis for his proposal.

According to the Kenya National Bureau of Statistics, local vehicle assembly dropped by 14.58 percent in 2024, with only 11,555 units rolled out compared to 13,527 units in 2023.

The housing sector showed similar strain, with cement consumption—a key indicator of construction activity—falling by 10 percent in the third quarter of 2024, reaching 2.197 million tonnes compared to the same period in 2023.

But the parliamentary committee countered that these declines occurred during a period marked by economic and political turbulence that was beyond the control of investors.

Commercial interest rates surged above 20 percent, making financing significantly more expensive, while the country also experienced political unrest, including the Gen Z-led protests in June 2024. These factors, they said, made it unfair to judge the tax incentive as ineffective after only two years.

“Removing the incentive risked disrupting ongoing investments, diminishing investor confidence, and undermining national efforts to promote local manufacturing and reduce the housing deficit,” the committee said in its report.

The lawmakers further stressed that abrupt tax changes would damage Kenya’s appeal to large-scale investors who rely on predictable tax regimes to make long-term decisions.

The committee maintained that incentives of this nature require time to be effective, and warned that reviewing such policies prematurely sends the wrong signal to the business community. “Retaining the 15 percent corporate tax rate was viewed as necessary to uphold policy stability, encourage long-term investment, and maintain momentum in these vital areas of the economy,” the lawmakers said.

By upholding the tax incentive, Parliament has effectively dismissed Treasury’s concern over its short-term performance and instead chosen to support continued policy consistency to allow time for the initiative to yield results.

The decision signals lawmakers’ commitment to nurturing the manufacturing and housing sectors through stable and investor-friendly policies.