Banks, Savings and Credit Cooperative Organization (SACCOs) and other lenders are now exempted from Value Added Tax (VAT) on the sale, disposal or realisation of repossessed collateral under the new Finance Bill.

🇰🇪 Breaking It Down

The Finance Act 2026, signed into law by President William Ruto on June 23, has amended part two of the first schedule of the VAT Act to include the change.

It places the sale of repossessed assets recovered from borrowers who default on loans under exempt financial services, meaning such transactions will no longer incur VAT for lenders.

“The making of any advances or the granting of credit, including the sale, disposal or realization of collateral, repossessed assets or secured property arising from the enforcement of security for loans, credit or other exempt financial services,” the amendment read.

📌 What You Need to Know

The major change resolves a long-standing tax dispute between lenders and the Kenya Revenue Authority (KRA), with implications for how banks go about the disposal of repossessed collateral.

Banks have been pursuing a change in the law to stop the authority from demanding VAT on the recovery of bad debts through the sale of secure assets.

The Tax Appeals Tribunal in January 2025 had ruled that while the principal loan amount was exempt from VAT, the recovery process involving seized or repossessed property was not explicitly covered.

Consequently, the tribunal stipulated that KRA continue to collect a 16 per cent VAT on the repossessed goods, leaving the lenders frustrated.

The new law further addresses concerns that were raised by the Kenya Bankers Association (KBA) in May over the first proposed Finance Bill 2026.

The association argued that the recovery of unpaid loans is not a profit-making activity and should therefore not be considered taxable.

📰 Source: Kenyans.co.ke