The Kenya Association of Manufacturers (KAM) has warned that the Finance Bill 2026 could significantly increase production costs across the industrial sector, citing a range of proposed tax and levy measures that may pressure already tight manufacturing margins and affect competitiveness.
In a memorandum to Parliament's Finance and National Planning Committee, KAM says the Bill introduces far-reaching changes that would fundamentally alter the cost structure of manufacturing in Kenya, led by the proposed shift of key industrial inputs from zero-rated to exempt VAT status.
The move, the lobby warns, would block manufacturers from reclaiming input VAT on raw materials, effectively inflating production costs across agro-processing, pharmaceuticals, packaging, and export-oriented industries.
The association also points to expanded excise duty coverage and rate adjustments on selected manufactured goods, alongside new levies such as a withholding tax on scrap metal sales, which it says will directly raise input costs for steel, fabrication, and allied industries.
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"Manufacturing industry is a key sector of the Kenyan economy: contributes about 7.1% of GDP, employed directly 388,564 Kenyans in 2025 and contributes at least 18% of taxes," KAM said.
"Such frequent changes/proposals increase business uncertainty."
The lobby argues that the cumulative effect of VAT reclassification, excise expansion, and tighter tax enforcement could trigger a cascading rise in the cost of production, ultimately feeding into higher prices for consumers.
KAM opposed proposals to shift locally assembled mobile phones from zero-rated to exempt VAT status, warning it would erode competitiveness against imported devices, while also objecting to a proposed excise duty increase on phones from 10 percent to 25 percent, which it says could stall Kenya's emerging electronics assembly sector.
On electric mobility, the association is pushing to retain zero-rated VAT treatment for locally assembled electric motorcycles, buses, and bicycles, arguing that exempt status would incentivize imports of fully built units and undermine local job creation.
Beyond sector-specific taxes, the manufacturers' lobby is also flagging broader compliance pressures, including shorter tax filing timelines, expanded digital reporting requirements, and strengthened enforcement measures by the Kenya Revenue Authority, all of which it says will increase administrative costs, particularly for SMEs.
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KAM is now calling on Treasury and MPs to review the proposals, retain zero-rating for critical inputs, and reconsider tax measures it says could destabilize industrial growth at a time when manufacturers are already grappling with high energy costs, expensive credit, and weakening consumer demand.
