What Has Changed?
The Finance Act, 2026 introduced several new VAT exemptions covering specific goods, projects and financial transactions.
New VAT-Exempt Items and Transactions
1. Dialysis Equipment
VAT exemption was introduced for dialysis equipment, helping reduce acquisition costs for hospitals and dialysis centres.
2. Scrap Metal
Scrap metal was moved to VAT-exempt status. Businesses dealing in scrap metal will no longer have output VAT against which related input VAT can be recovered.
3. Public-Private Partnership Projects
Goods for the direct and exclusive use in infrastructure projects undertaken under a PPP framework are VAT-exempt, subject to approval.
4. National Infrastructure Fund Projects
Goods for the direct and exclusive use in qualifying infrastructure projects funded by the National Infrastructure Fund are VAT-exempt, subject to approval.
5. Large Investment Projects
Plant, machinery, equipment and spare parts for projects with an investment value of at least KES 3 billion are VAT-exempt, subject to approval.
6. LPG Infrastructure
Taxable goods used to construct LPG storage tanks and related infrastructure are VAT-exempt where the investment is at least KES 5 billion, subject to the required recommendation.
7. Loans, Collateral and Repossessed Assets
Advances or credit, including the sale, disposal or realisation of collateral and repossessed assets arising from enforcement of security for loans and other exempt financial services, are VAT-exempt.
What Does This Mean?
VAT exemptions can reduce the upfront VAT cost on qualifying supplies. However, input VAT relating to exempt supplies generally cannot be recovered, which may affect business costs and pricing.
Businesses should distinguish between zero-rated and VAT-exempt supplies and assess the impact on input VAT recovery and costs.
Key Takeaway
Businesses should confirm whether a supply qualifies for exemption, whether approval or a recommendation is required, and whether the related input VAT will be recoverable.
Source: Finance Act, 2026 — VAT Act.
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