Written by Lisa Murimi
Kenyans should brace for a fresh wave of price increases after the government proposed a shift in tax classification for essential goods in the 2025 Finance Bill.
During the Budget Summit held on Tuesday, Kenya Association of Manufacturers (KAM) CEO Tobias Alando warned that the reclassification of several goods from zero-rated to tax-exempt will significantly drive up the cost of commodities.
This change, he explained, removes the ability for manufacturers to claim VAT refunds on input costs, pushing the financial burden onto consumers.
“The reclassification of goods from zero-rated (Second Schedule) to exempt (First Schedule) will inevitably lead to higher prices for consumers. Therefore, we urge for greater financial allocation to clear outstanding VAT refunds,” Alando stated.
Zero-rated goods allow producers to claim VAT refunds on production inputs, keeping final prices low.
In contrast, tax-exempt goods do not permit these refunds, making production more expensive — and the added costs are likely to be passed on to consumers.
Affected products include raw materials for pharmaceuticals, animal feeds, locally assembled mobile phones, and sugarcane transport services.
Alando also criticized the Kenya Revenue Authority (KRA) for administrative delays, urging the agency to adopt systems that allow immediate VAT claims post-production.
He further argued that Kenya’s tax burden unfairly targets formally employed citizens through excessive deductions.
“KRA must establish workable systems that enable manufacturers to claim input VAT immediately after production. We must streamline our current VAT regime,” Alando said.
“Many of our current tax policies disproportionately burden those in formal employment. We must explore strategies to collect the same revenue from a wider tax base.”
Treasury Cabinet Secretary John Mbadi, while defending the Finance Bill, claimed it introduces no new taxes but focuses on closing revenue loopholes through enhanced compliance.
