What Has Changed?
The Finance Act, 2026 introduced changes to VAT exemptions under Part II of the First Schedule to the VAT Act, affecting tourism and recreational facilities, public-private partnership projects and LPG infrastructure services.
1. Paragraph 26 — Tourism and Recreational Facilities
The VAT exemption for taxable services used directly and exclusively in constructing tourism facilities, recreational parks of at least 50 acres, and convention or conference facilities was removed.
Impact: Developers will now incur VAT on qualifying construction services, increasing upfront project costs and affecting cash flow. Although input VAT may be deductible, it could become an unrecoverable cost where the recipient makes exempt supplies.
2. Paragraph 39 — Public-Private Partnership Projects
A VAT exemption was introduced for services used directly and exclusively in implementing infrastructure projects under a PPP framework, subject to the required approvals.
Impact: This provides VAT relief for qualifying services in approved PPP projects, supporting infrastructure investment. Project sponsors must ensure the prescribed conditions and approvals are met.
3. Paragraph 40 — LPG Storage Tanks and Related Infrastructure
A VAT exemption was introduced for taxable services used in constructing liquefied petroleum gas (LPG) storage tanks and related infrastructure in Kenya, provided that:
- The investment amounts to at least KES 5 billion.
- The project is recommended by the Cabinet Secretary responsible for energy.
Impact: The exemption reduces upfront VAT costs and improves project cash flow, supporting investment in LPG infrastructure. However, it restricts input VAT deduction.
Key Takeaway
The Finance Act, 2026 withdrew VAT relief for specified tourism construction services while introducing targeted exemptions for qualifying PPP and large-scale LPG infrastructure projects.
Businesses should confirm the applicable paragraph, project conditions and approval requirements before applying an exemption.
Source: Finance Act, 2026 — Part II of the First Schedule to the VAT Act.
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