Treasury Outlines Essential Goods Slated for VAT Exemption in Finance Bill 2026

The National Treasury has formally tabled proposals for the Finance Bill 2026, highlighting a strategic shift toward easing the tax burden on essential commodities. Treasury Cabinet Secretary John Mbadi has indicated that the government will prioritize broadening the tax base and enhancing compliance rather than introducing new tax rates for the upcoming fiscal year.

Central to this legislative framework is a list of goods and services proposed for exemption from Value Added Tax (VAT). These measures are designed to cushion Kenyans against the rising cost of living while supporting the manufacturing and agricultural value chains, which remain the backbone of the local economy.

According to the draft proposals, the exemptions target basic food items and agricultural inputs. This move is intended to lower production costs for farmers and ensure that processed food products remain affordable for the general population. The government is betting on these concessions to stimulate domestic consumption and stabilize market prices.

In the energy and transport sectors, the Bill explores relief for specific fuels and equipment. While petroleum products have seen fluctuating tax treatments in previous years, the 2026 proposals seek to streamline the VAT status of clean energy technologies, including solar equipment and electric vehicle components, to align with national green energy goals.

The construction and infrastructure sectors are also expected to benefit from refined tax treatments. Materials used in the development of affordable housing units and large-scale public works are being reviewed for potential zero-rating or exemptions. This is aimed at reducing the overall cost of development and encouraging private-sector participation in infrastructure projects.

President Ruto has maintained that the administration's fiscal policy must balance the need for revenue mobilization with the reality of the economic pressure facing citizens. By exempting critical goods, the Treasury hopes to foster a more predictable business environment that encourages investment without triggering further inflation.

Beyond specific product exemptions, the Finance Bill 2026 emphasizes the digitization of tax collection. The Kenya Revenue Authority is set to intensify the use of the electronic tax invoice management system (eTIMS) to ensure that even with these exemptions, the government maintains a healthy revenue stream through tighter monitoring of non-exempt transactions.

Public participation on these proposals is expected to commence shortly, providing stakeholders in the trade and manufacturing sectors an opportunity to voice their concerns. The final version of the Bill will be critical in determining the trajectory of Kenya’s economic recovery as the country moves into the 2026/27 financial cycle.