What Has Changed?
The Finance Act, 2026 retained the deletion of four paragraphs from the First Schedule to the VAT Act. This means the affected goods are no longer covered by the previous VAT exemption and are now subject to standard-rated VAT.
1. Paragraph 49 — Goods of Chapter 88
This covers all goods of Chapter 88, excluding helicopters. For example, this may include certain aircraft, spacecraft and related aviation equipment falling under Chapter 88.
Removing the exemption means VAT will apply to the affected goods, increasing the cost of acquisition or importation.
2. Paragraph 58 — Aircraft Direction-Finding Equipment
This covers direction-finding compasses, instruments and appliances for aircraft. Specialised aircraft navigation and direction-finding instruments previously covered by this exemption are now subject to VAT under the standard-rated treatment.
3. Paragraph 62 — Tourism and Recreational Facilities
The exemption covered taxable goods for the direct and exclusive use in constructing:
- Tourism facilities.
- Recreational parks of 50 acres or more.
- Convention and conference facilities.
This may include construction materials, equipment and other qualifying goods acquired specifically for these projects. Removing the exemption increases the upfront cost of acquiring these goods.
4. Paragraph 109 — Affordable Housing
This covered goods imported or purchased locally for the direct and exclusive use in constructing houses under an approved affordable housing scheme.
Construction materials and qualifying building inputs acquired specifically for approved affordable housing projects are now subject to VAT.
What Does This Mean?
Previously: Qualifying goods → VAT exempt
Now: Qualifying goods → Standard-rated VAT
This means the acquisition or importation cost increases upfront, particularly for capital-intensive projects in aviation, tourism, construction and affordable housing.
Input VAT Recovery
VAT paid on purchase or importation may become input VAT and may be claimable or recoverable for a taxpayer entitled to claim input VAT, subject to the VAT Act requirements.
Therefore, the change can create an upfront cash-flow burden even where the VAT may ultimately be recoverable through the VAT system.
Businesses affected should maintain proper tax invoices, import documentation and VAT records to support their input VAT claims.
Practical Takeaway
Businesses in aviation, tourism, construction and affordable housing should review the VAT treatment of affected goods, update budgets and preserve documentation supporting any input VAT recovery.
Source: Finance Act, 2026 — First Schedule to the VAT Act.
TAX HOME KENYA
Simplifying Your Tax Journey.
📱 WhatsApp/Call: +254 725 416 982
📧 taxhomekenya24@outlook.com