Category: Business Daily

Pre-population of income tax returns took effect on January 1, 2026. The process allows KRA to use alternative sources of data, including withholding tax certificates, customs duty data and third-party information such as bank statements, to determine a taxpayer’s income and tax liability.

Currently, taxpayers are unable to amend tax liabilities captured in KRA pre-populated returns, leaving them vulnerable to assessments that may overstate their obligations to the tax authority and threaten business viability.

Clause 48 of the Finance Bill 2026, which proposes to amend Section 75 of the Tax Procedures Act, was further amended on June 18, 2026, during the Committee of the Whole House stage to provide safeguards for taxpayers where KRA relies on pre-populated data.

Taxpayer safeguards

‘The Commissioner shall notify the person that a pre-populated return has been issued. The pre-populated return shall be issued on or before the end of January of each year of income to the person expected to lodge the return. A person issued with a pre-populated return may confirm or amend the pre-populated return within two months from the date the pre-populated return is issued by the Commissioner,’ the amended Clause 48 of the Finance Bill 2026, as adopted by the National Assembly, states.

Pre-population of income tax returns has been significantly enabled by the mandatory issuance of eTIMS invoices in line with Section 23A of the Tax Procedures Act and Section 16(1)(c) of the Income Tax Act, which provides that deductible expenses must be supported by eTIMS invoices.

According to the National Assembly’s Finance and Planning Committee, the amendment empowering taxpayers to amend pre-populated income tax returns is intended to provide a safeguard against sweeping assessments that undermine tax justice.

‘Where we have instances of pre-populated returns, whereas we agree that we need to leverage technology for tax administration, we are also putting the obligation on the Revenue Authority that it will have to give the taxpayer a chance to amend the pre-populated returns. This is meant to ensure that we don’t have the Authority coming for everyone and giving fictitious assessments which the taxpayer is not able to amend,’ Finance and Planning Committee Chairperson Kuria Kimani told the National Assembly.

Data visibility

According to KRA, the Income and Expenses Validation exercise, which enabled the pre-population of income tax returns from January 1, 2026, has been pivotal in enhancing visibility and widening the tax base.

‘Just looking at this year alone. From people who have never before paid a single shilling in direct taxes, by now they have paid Sh7.8 billion. This is just 97,000 taxpayers who have come forward voluntarily following income and expenses validation,’ KRA Commissioner for Micro and Small Taxpayers George Obell said.

The National Assembly further amended the Finance Bill 2026 to require KRA to provide taxpayers with a written explanation of how an assessment was arrived at where they are deemed to have engaged in tax avoidance.

‘The Commissioner shall issue a person determined to have entered into or carried out a tax avoidance scheme written reasons for the determination made within thirty days of the determination,’ the adopted version of the Finance Bill 2026 states in Clause 41, which amends Section 18 of the Tax Procedures Act.

A new official survey on remittances shows that 680,207 Kenyan women in the diaspora sent support home, 52 percent more than the 447,475 men who said they assisted relatives and friends through cash transfers, in-kind support or both.

The survey, which polled 4,400 households, was conducted in August 2025 by the Kenya National Bureau of Statistics (KNBS), in collaboration with the Central Bank of Kenya (CBK) and Financial Sector Deepening Kenya (FSD Kenya). It marks the first comprehensive nationwide assessment of household remittance flows in Kenya.

‘Among males, cash remittances were the most common, with 338 thousand males sending cash, compared to 84 thousand who sent in-kind remittances and 24 thousand who sent both types,’ the survey said.

Changing patterns

‘This trend differed for females, the majority of whom reported sending in-kind support, with 403 thousand individuals providing in-kind support compared to 241 thousand who sent cash. Overall, a larger number of individuals (580 thousand) sent cash remittances while 488 thousand sent in-kind support,’ it added.

In-kind remittances are non-cash transfers sent by migrants or diaspora members to their home countries. Instead of sending money, they purchase and ship physical goods such as clothing, electronics, farm equipment or building materials directly to families or communities.

The shift is particularly pronounced in non-cash transfers.

More than 403,000 women reported sending in-kind support such as food, clothing, medicines and other household essentials, compared with 84,000 men.

The trend challenges the traditional perception of remittances as being largely driven by male breadwinners. Women also outnumbered men in the overall number of remittance senders.

Cash dominance

Men, however, remained the dominant senders of cash remittances.

More than 338,000 men reported sending cash to relatives and friends, compared with 241,000 women, highlighting their continued lead in direct monetary support.

Remittance inflows in cash stood at Sh848.4 billion, while in-kind transfers totalled Sh83.5 billion.

Women are also emerging as the leading recipients of remittances among Kenyan households.

According to the KNBS, CBK and FSD Kenya survey, six million women reported receiving cash or in-kind support in 2025, compared with 4.7 million men.

Women also dominated among recipients of multiple forms of support, with 467,527 reporting receipt of both cash and in-kind transfers, compared with 320,452 men.

The data shows that women are increasingly at the centre of the financial and social support networks linking Kenyan households to relatives living abroad.

While men’s receipt of remittances is heavily concentrated in early and middle adulthood, women remain consistently reliant on support across the life cycle, including in older age groups.

In contrast, men in their 30s and 40s account for a large share of in-kind-only transfers, suggesting strong intra-household support flows even among working-age males.

State House spending on foreign travel surpassed Sh1 billion in the nine months to March 2026, marking a record expenditure and underscoring the burden on taxpayers from increased trips abroad.

A budget review by the Controller of Budget shows that State House spent Sh1.27 billion on foreign travel in the nine months to March this year, eight times the Sh146.5 million spent in the corresponding period a year earlier. It is the first time State House expenditure on foreign travel has crossed the Sh1 billion mark.

The surge in spending comes at a time when President William Ruto visited destinations including Washington DC, London, Tokyo, the Gulf region and several African countries.

Dr Ruto’s foreign trips involve large entourages whose expenses are funded by taxpayers through budgetary allocations to State House.

Travel surge

The spending by State House on foreign trips pushed total expenditure by government offices on overseas travel to Sh6.508 billion in the nine months ended March this year, up from Sh5.139 billion a year earlier.

The Kenya Kwanza administration maintains that Dr Ruto’s travels have secured critical foreign labour agreements, including with Saudi Arabia, as well as financing for strategic infrastructure projects.

Dr Ruto recently defended his increased foreign travel, saying it is vital in shaping Kenya’s economic diplomacy and development agenda.

‘Sometimes they ask why the President has travelled abroad or met leaders from different parts of the world. That is the job I was elected to do,’ Dr Ruto said recently.

‘Some say I am always travelling on holiday. If you want a holiday, go on holiday. My diary is booked six months ahead. Transforming this country requires hard work.’

Some of Dr Ruto’s trips during the current financial year include a visit to Washington DC in December last year at the invitation of President Donald Trump and an official visit to London in July last year, where he met UK Prime Minister Keir Starmer.

Dr Ruto also attended the Ninth Tokyo International Conference on African Development in Yokohama, Japan, in August last year. In addition, he travelled to Saudi Arabia, Italy, Azerbaijan, Kazakhstan and Tanzania.

State officials on foreign trips, especially to major cities such as Washington DC, New York, London and destinations in the Gulf region, receive lucrative per diems in addition to costly air tickets and other expenses, all funded by taxpayers.

Fiscal pressure

However, the spending spree on foreign travel appears at odds with the government’s calls for a reduction in non-essential overseas trips as part of efforts to ease pressure on public finances.

Huge debt-servicing obligations, coupled with the need to fund development projects, have piled pressure on the Exchequer and triggered calls to cut spending on non-essential items.

Besides State House, members of Parliament and senators also significantly increased their spending on foreign travel.

Data from the Controller of Budget shows that MPs spent Sh1.479 billion in the nine months to March this year, up from Sh1 billion a year earlier, while senators spent Sh815 million compared with Sh438.2 million in the corresponding period last year.

A Dubai-based creditor has lost its bid to challenge the process that led to the takeover of Savannah Cement, with the High Court backing the actions taken by the administrator as part of the restructure of the company.

The decision closes a dispute over the sale that culminated in the acquisition of Savannah Cement by a consortium of Kenyan millers in 2025 after the cement maker collapsed under debts exceeding Sh14 billion.

The court dismissed W. General Trading LLC’s bid to stop the process that led to Savannah Cement’s takeover.

The Dubai company claimed Savannah Cement owed it $4.5 million (Sh582.7 million) and sought orders stopping the disposal of the company’s assets.

The creditor had accused administrator Peter Kahi of pursuing the sale n an opaque manner. It argued that unsecured creditors risked being prejudiced because no valuation of the assets had been undertaken before potential buyers were invited to express interest.

The dispute arose after the administrator published a notice seeking expressions of interest from investors interested in purchasing Savannah Cement’s business and assets as part of the administration process.

W. General Trading argued that creditors who met in April 2024 had approved a different strategy under which the company’s assets would be leased out while professional valuers assessed their worth. The company told the court it was surprised to see the administrator initiate a sale while its debt remained unpaid.

Mr Kahi opposed the application and told the court that creditors had approved his proposals during a meeting held on April 17, 2024.

He said the invitation for expressions of interest was consistent with resolutions adopted by creditors and was intended to achieve the objectives of administration.

The administrator also rejected claims that the process lacked transparency. He said the creditor had previously raised 12 concerns regarding the administration and that detailed responses had been provided.

Mr Kahi further told the court that valuation of the assets would be undertaken before any transaction was concluded.

The court agreed with the administrator and declined to halt the process.

It held insolvency courts should generally avoid interfering with an administration process unless it is being conducted oppressively or contrary to the objectives of the law.

“What the Insolvency Court has to do is to examine whether the conduct of the parties and the administrator does conform with section 522 of the Act,” said the judge.

“An administration is not to be interfered with unless it does not conform with the objectives of the Act.”

The court found that creditors had approved the administrator’s proposals and that there was no basis for stating that the process was unlawful.

“That being the case, I do not think that the actions of the first respondent (administrator) were reprehensible to warrant the orders sought,” the judge stated.

The ruling comes after a lengthy restructuring process at Savannah Cement, which was founded in 2012 and later emerged as one of the region’s largest cement producers.

The company was placed under administration in November 2022 after struggling with mounting losses and debt obligations accumulated over several years.

Its administration became one of the most closely watched corporate rescue processes because of the scale of creditor claims and the strategic importance of the manufacturer.

The company’s business was eventually acquired in August 2025 by a consortium comprising Mombasa Maize Millers, Kitui Flour Mills and Eldoret Grains Limited.

The new owners subsequently renamed the company Savannah Cement 2025 Limited, marking the end of a restructuring process that pitted lenders, trade creditors and investors against each other in a battle over the factory’s future.

Across Africa, digital transformation is no longer a future ambition but a present reality. Governments are digitising public services, banks are moving customers online, businesses are embracing cloud technologies, and artificial intelligence is becoming part of everyday workplace.

These innovations are driving efficiencies, improving customer experiences, and unlocking new opportunities for economic growth. Yet as organisations race to digitise, many are facing an uncomfortable reality as risks are rising even faster.

The conversation around digital transformation has largely focused on its benefits. We celebrate faster services, reduction of operating costs, greater convenience and improved efficiency. Until recently, what often received less attention are the vulnerabilities created by these same technologies.

These realities have become more evident in marketing, which is one of the most technology driven functions within most organisations. Customer relationship management platforms, marketing automation tools, e-commerce integrations, artificial intelligence, and advanced analytics are now central to how brands engage consumers. While these technologies have significantly enhanced marketing effectiveness, they have also introduced new risks.

Today, brands collect vast amounts of customer data to personalize experiences and improve engagement. However, every additional data point creates a responsibility to safeguard privacy and maintain consumer trust. In a digital economy, trust is one of the most valuable assets a brand can possess, and once lost, it can take years to rebuild.

The rapid adoption of artificial intelligence presents another challenge. AI can generate content, segment audiences, optimise campaigns, and predict consumer behaviour at unprecedented speed. Yet without proper governance, organisations risk spreading misinformation, producing inaccurate outputs, introducing bias into decision-making, and creating customer experiences that feel impersonal or inauthentic.

Social media has significantly increased reputational risk by enabling mistakes, misleading messages, or poor customer service incidents to spread rapidly. While digital transformation allows organisations to engage consumers faster, it also accelerates the spread of errors and misinformation, potentially turning minor issues into major crises within hours.

Kenya’s financial sector offers a compelling example. As mobile banking, digital lending, and online payments continue to expand, cybercriminals are becoming increasingly sophisticated.

According to the Central Bank of Kenya’s 2024 Financial Sector Stability Report, banks lost more than Sh1.5 billion to cyber and technology-related fraud in 2024, while reported cases rose from 153 in 2023 to 353 in 2024.

The challenge extends far beyond banking and other markets outside Kenya. Cybercrime is now among the fastest-growing threats across the continent. According to Interpol’s 2025 Africa Cyber Threat Assessment Report, cybercrime accounts for more than 30 percent of reported crime in parts of eastern and western Africa.

Despite this reality, many organizations continue to manage risk without fully taking into consideration the new realities of the operating environment.

Artificial intelligence is also introducing new layers of complexity across business functions. Organizations are deploying AI tools to automate decisions, analyse customer behavior, improve productivity, and accelerate innovation.

However, many have yet to fully address critical questions around data governance, privacy, accountability, transparency, and ethical oversight.

The greatest risk is not the technology itself, but the assumption that digital transformation is primarily the responsibility of certain departments but a concern for the entire organisation.

In reality, digital transformation is a business transformation challenge. Treating it solely as a technology issue leaves organisations exposed to risks that expose the business and could impact company revenue.

As organisations accelerate their digital transformation journeys, innovation must be matched with resilience. Cybersecurity, data governance, risk management, and responsible AI practices should not be viewed as barriers to progress. They are the foundations of sustainable digital growth.

In the race toward digital maturity, every new technology creates opportunity, but it also introduces new vulnerabilities. While organisations continue to innovate, they must also build the safeguards needed to protect their operations, reputation, and customer trust.

Technology may attract customers, but trust is what keeps them. Organisations that protect data, respect privacy, and deliver secure experiences will not only reduce risk but also earn the confidence that drives long-term growth and competitive advantage.

Pakistan PM Shehbaz Sharif announces Islamabad MoU signed between US and Iran. Iran to reopen Strait of Hormuz, US to lift naval blockade immediately; formal ceremony set for June 19 in Switzerland.

“As things stand, the plan is still for the US and Iran, along with mediators Pakistan and Qatar and other involved countries, to meet tomorrow at Buergenstock for initial negotiations about implementing the agreement.

“No further information is currently available regarding the schedule and details of this meeting,” the Swiss foreign ministry said in a statement.

Money transfer charges levied by payment service providers (PSPs) such as M-Pesa and Airtel Money will be spared from the 16 percent value added tax (VAT) as MPs propose additional amendments to the Finance Bill, 2026 to exempt the cash transfer services.

The Departmental Committee on Finance and National Planning has recommended further tweaks to the first Schedule of the Value Added Tax (VAT) Act providing a clear distinction between mobile transfers and support services such as cash handling and payment processing.

The changes follow objections to the application of VAT on money transfers, payment processing, settlement, merchant acquiring, gateway or aggregation services by various stakeholders including Safaricom and Airtel which hold licenses as payment services providers (PSPs) from the Central Bank of Kenya (CBK).

The imposition of VAT on mobile money transfer charges would have increased the cost of payments via the platforms negating a drive to bring down the fees.

‘The committee recommended the amendment of the clause to adopt a broader, technology-neutral framework covering money transfer services and related transactions, while clearly distinguishing taxable transactions such as cash handling and payment processing,’ the Finance Committee said in its report on the consideration of the Finance Bill.

‘The committee further noted the need for a clear definition of ‘payment service provider’ to ensure certainty, consistency, and effective application of the law as contained in the Bill.’

Payment service providers led the objection to the proposal to levy VAT on the platforms highlighting its impact on the affordability of services by consumers.

Some 42 firms including Pesapal, Kenswitch, Airtel Money and M-Pesa would have been liable for value added taxes even as the National Treasury insisted that the tax was targeted at owners of platforms and not users.

Airtel Networks Kenya Limited warned the proposal would have resulted in double taxation as mobile money payments already attract excise duty.

‘Delete the proposal to retain the VAT-exempt status of money transfer services for affordability of mobile-money services and to promote an inclusive and digitally driven financial eco-system among others,’ Airtel said.

‘Furthermore, its deletion would preserve integrity and coherence of the tax framework designed to ensure that financial services are taxed once, either through the VAT or the excised duty regime.”

The Kuria Kimani-led committee recommended that the National Treasury adopt a clearer definition of the term-payment service provider-to ensure certainty, consistency and the effective application of the law as contained in the Bill.

Tax experts had warned that the VAT charge on payment service providers would have been payable by consumers as revenues earned by PSPs were generated from user fees.

For the widely used M-Pesa service with nearly 40 million users, and which was the pioneer mobile money service, the billions of shillings in daily transfers would have been a low-hanging fruit for exchequer revenues.

The application of VAT on the user charges would have made transfers costly rendering the goal of bringing down mobile-money charges sterile.

The Kenya National Financial Inclusion Strategy 2025-2028 by CBK for instance proposes caps to the cost of person-to-person mobile money transfers and seeks to reduce costs for users of mobile money from a baseline of Sh23 –the average cost per mobile money transaction in 2024– to a mean of Sh10 by 2028.

Charges on certain mobile money transactions are already as high as 6.9 percent of the amount being transferred, far outpacing what banks charge their retail customers to move cash.

‘M-Pesa user charges are already expensive, and this would only be a step in the wrong direction, ultimately sidelining some from using formal financial services,’ said David King’ori, a senior tax advisor at corporate law firm Bowmans Law.

M-Pesa charges Sh7 for transfers between Sh101 and Sh500 and a maximum of Sh108 for transfers above Sh50,000, while low-value transactions under Sh100 are free.

The proposal to apply VAT on mobile transfer platforms stemmed from a High Court ruling that saw judges bar the Kenya Revenue Authority (KRA) from collecting taxes from PSPs, including Pesapal and Kenswitch.

In its ruling, the High Court noted that the services of receiving, transferring and processing payments on behalf of third-party merchants were exempt from VAT.

Attempts to apply VAT on PSPs have been deemed discriminatory as traditional financial services have not been subjected to the same taxation attempts.

Automated Teller Machines (ATMs) transactions, telegraphic money transfer services, foreign exchange transactions, cheque handling and loan underwriting are deemed as financial transactions and are exempt from VAT.

The issuance of securities for money, provision of guarantees and the issue, transfer and receipt of dealings with bonds or stocks are also exempt from VAT.

In terms of theatrical delivery, and in articulating the sweeping spending and revenue decisions central to economic policy, Treasury Cabinet Secretary John Mbadi’s performance during this year’s budget presentation was impressive. He hit the right notes.

But the speech itself was unnecessarily long.

Historically, budget speeches had to be crafted to deliver absolute surprise. The contents of that iconic black briefcase, hoisted before cameras on Parliament’s steps, were genuinely confidential until the minister broke the seal.

Today, however, that mystique is dead. Anyone who has read the Budget Policy Statement (BPS) and the mountain of budget documents published weeks in advance of Budget Day already knows the script.

In an era of pre-published fiscal data, the grand, multi-hour budget speech has become an obsolete ritual. The length of the speech should reflect that.

Beyond the length, comparing this year’s presentation with the budget speeches of Tanzania, Uganda, and Rwanda-all delivered on the same day-reveals a troubling regional trend. What stands out is how effectively the EAC partner states have diluted the Common External Tariff (CET) of 35 percent.

If you count the sheer number of “stays of execution” allowed across the region, it becomes glaringly evident that organised lobbies and powerful domestic oligarchs now dictate what enters individual Finance Bills, particularly regarding customs duties.

The uncomfortable truth we must confront is that we no longer have a functional customs union to speak of. National protectionism and corporate capture have quietly hollowed it out from within.

Domestically, Mr Madi’s speech was a masterclass in the art of the large number, featuring allocations for every imaginable project, including a highly surreal budgetary line item for village elder allowances. We have, it seems, magically found money for everything.

But the question nobody is asking loudly enough is: where is the cash actually coming from?

Strip away the optics of Budget Day, and the real story of any Kenyan budget emerges not in June, but in March-six months into the financial year. That is when the data begins to paint a very different picture from the one presented to lawmakers.

March is when the structural cracks inevitably appear. We see exchequer releases that never arrived on time, supplementary budgets that quietly reshuffled priorities nobody voted for, and mushrooming expenditure arrears that reveal a government spending money it simply hasn’t collected. These mid-year reallocations expose what the state actually values, versus what it claimed to value during the televised pomp of June.

This is not cynicism; it is pattern recognition. Across administrations of Jomo Kenyatta; Daniel Moi; Mwai Kibaki; Uhuru Kenyatta and William Ruto, Kenya has structurally failed to close the gap between printed estimates and actual expenditure. The annual budget document has too often functioned as a political wish list dressed up in official fiscal language.

Mr Mbadi is now the custodian of an ambitious spending programme at a moment when national fiscal space is virtually non-existent, revenue targets are routinely missed, and the public’s patience with state promises is wearing dangerously thin.

A glance at the monthly exchequer outturn data published regularly by the National Treasury shows that the primary source of macro-pressure remains debt service. There are months where the government spends up to 70 percent of ordinary revenues on debt repayments alone. Once you factor in public wages and constitutionally mandated disbursements to county governments, the state operates with zero fiscal headroom.

The coming months will demand constant, exhausting crisis management. To give credit where it is due, however, the team at the National Treasury has proven highly adept at this tightrope walk over the last three years, consistently improvising to avert worst-case scenarios.

When faced with Eurobond maturity pressure, they executed a buyback and extended tenors. When a domestic forex squeeze threatened fuel supply, they centralised imports and negotiated government-to-government credit.

Each intervention has drawn fierce criticism, and each carry significant long-term risk. Liability management does not reduce the overall debt burden; it merely pushes it down the road.

My parting shot: when the government persists in collecting taxes for services it does not provide; the inevitably consequence is the following; the tax base shrinks; forcing it to either borrow more or to print money.

Stakeholder management is often described as a soft skill, but in reality it is as much about understanding power as it is about communication. Within organisations, influence rarely flows only through formal structures. Relationships, shared history and informal networks often shape decisions long before official discussions begin.

For finance professionals, this creates a persistent challenge. We are trained to make decisions grounded in data, risk and accountability, ensuring they can withstand scrutiny.

Yet influence can sometimes outweigh process, weakening governance and shifting decisions from what is right to what is merely acceptable. For women in senior roles, the challenge can be greater, as professional firmness is occasionally misinterpreted as inflexibility.

Effective stakeholder management therefore requires consistency. Leaders must know where compromise is possible and where principles must hold. Respect for others is essential, but so is the willingness to stand firm when it matters.

Three disciplines are particularly important. First is clarity in decision-making. When decisions are anchored in data, policy and risk, there is less room for behind-the-scenes influence and power plays.

Second is maintaining boundaries. Strong leaders understand where flexibility ends and where rules must prevail. This is not about rigidity but about protecting the integrity of the organisation.

Third is composure under pressure. Influence is often tested during moments of resistance, and it is in these moments that steadiness signals authority. Leadership is frequently refined through the discipline of resisting compromises that undermine established principles.

Organisations also have a responsibility to examine their own cultures. Governance frameworks alone are insufficient if informal influence is routinely rewarded over accountability.

When hidden power shapes outcomes, leaders spend more time navigating politics than delivering results, with consequences for productivity, governance and risk management.

The focus, therefore, should not rest solely on individual resilience. Organisations must address the conditions that make political navigation necessary in the first place. Strong systems create the environment in which effective leadership can thrive.

Lawmakers have rejected the National Treasury’s proposal to raise excise duty on mobile phones from 10 percent to 25 percent and shift the tax payment point from importation to handset activation, citing concerns over affordability, tax administration and digital inclusion.

In its report on the Finance Bill, 2026, the National Assembly’s Departmental Committee on Finance and National Planning recommended deleting the proposal, arguing that it would create compliance challenges, delay revenue collection and expose consumers to uncertainty.

The Treasury had proposed increasing the excise duty on mobile phones to 25 percent while moving the tax point from importation or factory release to the point at which a handset is activated on a mobile network.

The proposal was part of a plan to overhaul all taxes on imported phones.

However, MPs said shifting the tax point to activation would delay revenue collection from the point of importation to the point of sale and create confusion for consumers who could unknowingly purchase devices on which excise duty had not been paid.

The proposal had sparked concerns from telecom sector analysts, who flagged an ambiguity in the meaning of the ‘activation’ stage, on which taxes were payable on devices.

‘The committee further observed that the proposal could undermine efficient tax administration and negatively affect the affordability and accessibility of mobile phones,’ the finance committee’s report states.

It added that more research and stakeholder consultations were needed before such a policy could be implemented. The proposal had attracted opposition from phone dealers, the Kenya Private Sector Alliance, the Kenya Association of Manufacturers, the Kenya National Chamber of Commerce and Industry and several law firms and consultancies.

Stakeholders argued that the higher excise tax could undermine digital inclusion efforts, discourage local assembly and investment in the ICT sector, and increase the cost of accessing communication and digital services.

In a separate win for local smartphone assemblers, MPs also rejected a proposal to reclassify locally assembled mobile phones and lithium-ion batteries from zero-rated to VAT-exempt status. Zero-rated supplies attract no tax, allowing businesses to recover input VAT while exempt supplies do not allow input claims.

The committee recommended retaining the zero-rated status introduced under the Finance Act, 2023, saying it has helped lower production costs and support investment in local manufacturing.

‘The Committee observed that these items were recently granted zero-rated status under the Finance Act, 2023 to support local manufacturing and reduce the cost of essential goods. Reversing this position would increase production costs, discourage investment, and undermine predictability in the tax system,’ the report says.

The decision preserves access to VAT refunds claimed by local assemblers, including M-Kopa, Sun King and East African Device Assembly Kenya. The refunds have helped subsidise the cost of locally assembled smartphones targeting low-income consumers over the past three years.

The parliamentary recommendations come amid growing scrutiny of the government’s smartphone taxation policy after the National Treasury walked back plans to eliminate the 25 percent East African Community (EAC) customs duty on imported handsets.

The Treasury had initially proposed removing the customs duty alongside the 16 percent value-added tax, the 2.5 percent import declaration fee and the two percent railway development levy, while raising excise duty to 25 percent.

Had all the taxes been removed except the new excise duty, the total tax burden on imported smartphones would have fallen from about 55.5 percent to 25 percent, significantly reducing retail prices.

However, Treasury Cabinet Secretary John Mbadi last week confirmed that Kenya would instead seek a duty exemption on imported inputs used in the local assembly of smartphones while retaining the customs duty on finished devices.

Still, Kenya cannot unilaterally abolish the customs duty because it is set under the EAC common external tariff framework and would require approval from the regional bloc.

As a result, taxes on imported smartphones are now expected to fall only marginally to about 50 percent from the current 54.5 percent.

This is well above the 25 percent burden the government had initially projected, which leaves Kenyans exposed to high imported mobile phone prices.