What Has Changed?
The Finance Act, 2026 amended several paragraphs under the VAT Act relating to VAT exemptions.
1. Paragraph 51 — Official Aid-Funded Projects
The Act amended the provision covering goods used directly and exclusively in official aid-funded projects, including qualifying spare parts.
Existing exemptions granted before 30 June 2026 continue until the relevant project is completed.
2. Paragraph 89 — Aircraft Parts
The wording of the exemption was changed from “any other aircraft spare parts” to “aircraft parts.”
This broadens the wording of the exemption for qualifying aircraft parts imported by aircraft operators or persons engaged in aircraft maintenance, subject to the required recommendation by the competent civil aviation authority.
3. Paragraph 146 — Manufacturing Investment
The provision allows the Cabinet Secretary to determine VAT exemptions for capital goods intended to promote investment in the manufacturing sector.
The investment must have a value of not less than KES 2 billion.
What Does This Mean?
These amendments provide VAT relief in specific sectors and investment projects, but the exemptions are conditional. The nature of the goods, the qualifying project or investment and the applicable approval requirements must be considered before applying the exemption.
A VAT exemption should not be assumed simply because an item is used in manufacturing, aviation or an aid-funded project. Always confirm that the specific statutory conditions have been met.
THK Takeaway
Businesses should verify the relevant paragraph, project status, investment threshold and approval requirements before treating a supply as VAT-exempt.
Source: Finance Act, 2026 — VAT Act.
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