Kenya’s Draft Law Proposes Tax on Second-Hand Clothes

Why It Matters

The bill reshapes Kenya’s tax landscape, potentially increasing fiscal resources but also risking higher costs for consumers, digital inclusion, and small businesses, which could affect economic growth and investment confidence.

Key Takeaways

• 25% excise duty proposed on imported smartphones.
• 5% upfront tax on second‑hand clothing imports.
• PAYE relief omitted, keeping salaried workers’ tax unchanged.
• Corporate tax for non‑resident firms cut from 37.5% to 30%.

Pulse Analysis

Kenya’s Finance Bill 2026 marks a sweeping effort to expand the fiscal base as the government targets a staggering $3.63 trillion in revenue for the 2026/27 budget year. The draft pushes the budget deficit up to 5.3% of GDP, reflecting a need for additional resources to fund public services and infrastructure. By broadening the tax net to include emerging sectors such as mobile technology and digital finance, the Treasury hopes to capture revenue streams that have historically been under‑taxed.

The most contentious provisions target everyday Kenyans and small‑scale traders. A 25% excise duty on smartphones—devices essential for banking, commerce, and government services—could raise costs for millions who rely on mobile money platforms. Simultaneously, the bill imposes a 5% upfront levy on the customs value of second‑hand clothing, known locally as mitumba, demanding payment before goods are released, regardless of profit outcomes. The removal of VAT exemptions on money transfers and payment processing threatens to make digital financial services more expensive, potentially undermining financial inclusion goals. Critics also note the absence of PAYE relief, leaving salaried workers with unchanged tax burdens.

Despite the backlash, the bill includes measures intended to attract investment and support green initiatives. Corporate tax for non‑resident companies drops from 37.5% to 30%, a move designed to improve Kenya’s competitiveness for foreign capital. A tax amnesty extension offers a pathway to compliance for overdue liabilities, while VAT exemptions on electric buses, bicycles, and medical equipment signal a commitment to sustainable development. Clarifications on trust taxation and gratuity contributions aim to reduce double taxation. The overall impact will hinge on how Parliament balances revenue needs with the economic realities of consumers and small businesses.