The government has announced plans to scrap the zero-rated Value Added Tax (VAT) status currently applied to affordable housing projects, signalling a major change in the taxation of one of its flagship development programmes.
Speaking during a press briefing, National Treasury Cabinet Secretary John Mbadi said the proposed reforms will be included in the 2026 Finance Bill. He stated that the measures aim to strengthen tax administration and close loopholes that have been exploited within the existing incentive framework.
The Treasury boss explained that the zero-rated incentive was first introduced to boost investment in the housing sector and encourage developers to expand the supply of affordable housing across the country.
He added that tax incentives are regularly reviewed to determine whether they are still achieving their intended 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.
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According to the CS, a key challenge facing the government is the difficulty in tracking materials imported or procured under tax incentives for affordable housing projects. He noted that authorities often struggle to confirm whether the materials are used solely for their intended purposes.
“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?”
Treasury Cabinet Secretary John Mbadi
Additionally, the CS observed that similar challenges are also evident in other construction materials, including steel, which can easily be diverted to private developments unrelated to the intended projects, even after benefiting from tax reliefs meant for affordable housing initiatives.
He cautioned that gaps in monitoring and enforcement have created room for abuse, leaving the government exposed to significant revenue losses through VAT refund claims associated with the programme.
“So those challenges we are trying to eliminate by removing zero rating and taking them to be exempt, so we are not going to tax them; we are putting them exempt so that we do not tax them,” he asserted.
By Frank Mugwe
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