Treasury Cabinet Secretary John Mbadi has announced the government's plan to change the tax treatment of affordable housing projects under the 2026 Finance Bill.

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Mbadi, who spoke on Thursday, June 11, ahead of the budget reading in Parliament, said the government is proposing to move affordable housing from the current zero-rated VAT category to a VAT-exempt category.

According to the CS, the change is aimed at simplifying tax administration and reducing opportunities for tax misuse among those supplying materials for the multi-billion-shilling housing project.

Mbadi noted that the z ero-rated status was initially introduced to attract more investment into the affordable housing sector and encourage developers to build more homes for Kenyans.

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However, he said the government regularly reviews tax incentives to determine whether they are delivering the expected economic benefits.

"That provision was put there to attract more investment into the affordable housing sector, but you also have to review when you tax like that, you continuously review its performance. If it is not adding much value to the economy, then it has no business being left," said Mbadi.

The Treasury CS pointed out that one of the biggest challenges has been monitoring how tax-exempt construction materials are used upon purchase or entry into the country.

For example, he said it is difficult for the government to verify that cement or even steel bought under tax incentives for affordable housing is actually used in those projects and not diverted to other developments.

"If you say, for example, cement for affordable housing you will not tax, how do you determine and ensure that the cement that has been bought is actually going to affordable housing and not elsewhere," he stated.

According to Mbadi, such challenges have created loopholes that he said could lead to massive revenue losses for the government due to VAT refund claims.

📰 Source: Kenyans.co.ke