Finance Bill 2025: John Mbadi Introduces 16% VAT on Mobile Phones, Animal Feeds, and More
The Kenyan government, under President William Ruto, has introduced the Finance Bill, 2025. If passed by Members of Parliament (MPs), the bill could lead to higher prices for a range of essential goods. The main concern lies in a proposed change to how certain products are taxed under the Value-Added Tax (VAT) system.
Speaking during the bill’s presentation, National Treasury Cabinet Secretary John Mbadi called on lawmakers to reclassify some essential products. Specifically, he wants these items moved from the VAT zero-rated category to a VAT-exempt status. Although this change may seem minor, it carries significant financial consequences for producers and consumers alike.
Understanding the difference between zero-rated and exempt products is key. Both types are sold without a VAT charge to the end buyer. However, the difference lies in how manufacturers handle VAT during production. For zero-rated goods, businesses can claim refunds on VAT paid for raw materials. This reduces production costs, allowing them to keep prices stable.
When products are classified as VAT-exempt, however, manufacturers lose the ability to reclaim VAT on their inputs. This increases production expenses. As a result, many companies may pass those costs on to consumers. Consequently, basic items could become more expensive, affecting household budgets.
The items likely to be affected by this proposed change include:
- Raw materials and inputs used in manufacturing animal feeds, based on the recommendation of the Agriculture Cabinet Secretary.
- Transportation of sugarcane from farms to processing mills.
- Locally assembled and manufactured mobile phones.
- Motorcycles under tariff heading 8711.60.00.
- Electric bicycles.
- Solar and lithium-ion batteries.
- Electric buses classified under tariff heading 87.02.
- Bioethanol vapour (BEV) stoves under HS Code 7321.12.00, which are commonly used for cooking.
- Packaging materials for tea and coffee, again with a nod from the Agriculture CS.
“Manufacturers will find it harder to recover production costs. Inevitably, this burden will shift to the final consumer,” warned a financial analyst commenting on the bill.
Key household goods like sugar, milk, medicine, and solar-powered equipment may soon cost more. Since these are staple items for many families, any price hike could increase the cost of living.
The government has explained that its goal is to improve tax administration and reduce revenue losses. Rather than introducing steep tax increases, it aims to limit the number of goods eligible for VAT refunds. In turn, this move is expected to save money that the government currently spends reimbursing businesses.
During a Cabinet meeting held at State House in Nairobi on April 29, 2025, President Ruto and his team discussed broader budgetary changes. The meeting concluded that austerity measures would be introduced. As a result, the proposed national budget of KSh 4.3 trillion will be revised before submission to Parliament.
This budget trimming is part of a larger plan to bring the country’s finances under control. The government is targeting a fiscal deficit of 4.5% of Gross Domestic Product (GDP) for the 2025/2026 financial year. This marks a decline from 5.1% in 2024/2025 and 5.3% in 2023/2024.
“By tightening our spending and improving tax collection, we aim to protect public finances without imposing new hardships on citizens,” a senior government official stated.
Still, the decision to reclassify essential products has drawn mixed reactions. Economists warn that even if no new taxes are imposed directly, price increases due to input VAT changes can quietly strain households. Public support will likely depend on how effectively the government explains the benefits versus the cost impact.
In summary, the Finance Bill 2025 introduces critical tax adjustments that could influence daily expenses for Kenyan citizens. The shift from zero-rating to VAT exemption may appear technical, but its effect on prices could be very real. The coming weeks will show whether Parliament agrees with the government’s approach — or if revisions will be needed to ease the burden on consumers.
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Finance Bill 2025: John Mbadi Introduces 16% VAT on Mobile Phones, Animal Feeds, and More
