Parliament has been urged to review and amend sections of the Finance Bill, 2026, to prevent possible setbacks to major government programmes under the Bottom-up Economic Transformation Agenda (BETA).
Appearing before the National Assembly Finance and Planning Committee, Auditor General Nancy Gathungu warned that several provisions in the Bill could weaken key sectors if not adjusted.
Gathungu told MPs that unless targeted corrections are made, the Bill may fail to support its intended goal of raising revenue to fund government priorities. She also raised concern that gaps in revenue administration, weak internal controls and structural inefficiencies could affect the effectiveness of the proposed law.
One of the key areas of concern is Clause 31(a)(vii), which proposes the deletion of paragraph 109 of the First Schedule to the Value Added Tax Act. The paragraph currently provides VAT exemptions for goods imported or purchased locally for use in constructing houses under the approved affordable housing programme.
According to Gathungu, the change would mean that such goods would attract VAT at 16 per cent, raising the cost of construction.
“This is likely to make affordable housing units more expensive for Kenyans, with developers expected to pass the additional costs to buyers. The amendment also appears inconsistent with the objectives of the government’s affordable housing agenda under the Bottom-Up Economic Transformation Agenda (BETA),” Gathungu said.
She also raised concerns over Clause 31(a)(ix), paragraph 160 of the First Schedule to the Value Added Tax Act on animal feed inputs and raw materials. The Bill proposes changing these inputs from zero-rated to exempt status for materials used in making animal feeds, following approval by the Cabinet Secretary responsible for agriculture.
According to Gathungu, the shift would prevent farmers from claiming input VAT on purchases related to animal feed production, a cost that would likely be passed on to consumers.
“This is a threat to an enabler of sustainable economic transformation highlighted in the Budget Policy Statement and agricultural transformation under the BETA pillar,” Gathungu said.
She added that inputs or raw materials used in the manufacture of animal feeds should remain zero-rated to support the agricultural sector.
Another area flagged is Clause 31(a)(ix), paragraph 161 of the First Schedule to the Value Added Tax Act, which covers pharmaceutical manufacturing inputs. The Bill proposes changing these inputs from zero-rated to exempt status.
Gathungu warned that the move would prevent manufacturers from deducting and claiming VAT refunds, increasing production costs and potentially affecting the affordability of medical products.
“Although the proposal is in line with the Medium- Term Revenue Strategy that aims to progressively strengthen tax revenue mobilisation as outlined in the Budget Policy Statement, the move will also impact on the production cost of substances used for medical treatments, and that would negatively impact achieving Universal Health Coverage of the BETA pillar,” Gathungu said.
She further raised concern over Clause 31(b), Part II paragraph 1(b) of the First Schedule, which seeks to remove existing VAT exemptions on financial services, including money transfers and payment processing.
According to Gathungu, the change could affect micro, small and medium enterprises, which rely heavily on affordable financial transactions, and may go against the broader economic transformation goals under the Bottom-up Economic Transformation Agenda as outlined in the Budget Policy Statement.
Comments
Sign in with Google to comment, reply, and like comments.
Continue with Google