The Finance Bill 2026 has a quiet line item that, if passed as drafted, will raise the price of every electric bus, every lithium-ion battery, every electric motorcycle, every electric bicycle and every solar battery sold in Kenya from 1 July 2026.
The Bill was published on 30 April 2026 and tabled in Parliament on 5 May. Most of the headlines have read it as Kenya proposing 16% VAT on EVs. The actual mechanism is different, and worth getting right.
The Finance Act 2025, passed less than a year ago, made electric buses, electric motorcycles, electric bicycles and lithium-ion batteries zero-rated for VAT, with excise duty cut to zero. The Finance Bill 2026 proposes moving the same items from zero-rated to VAT-exempt. To the buyer at the till, both look the same. No VAT line on the receipt. The difference sits upstream.
When a product is zero-rated, the importer or assembler charges 0% VAT to the customer but is still allowed to reclaim the VAT it paid on inputs, such as shipping, components and services. That refund keeps the build cost lean. When a product is exempt, the importer still does not charge VAT to the customer, but loses the right to reclaim input VAT. That trapped tax becomes a hidden cost the importer absorbs and passes on as a higher retail price. Tax advisory firms Cliffe Dekker Hofmeyr and Vellum have both flagged this distinction in their reads of the Bill.
For a sector that imports almost all of its inputs, this matters. A 2025 industry study found that nearly all components for EVs in Kenya are imported. The trapped VAT lands on consumers as a price increase typically in the 10% to 14% range on retail, depending on how much of the final price comes from imported inputs, which is why outlets like TechCabal have used the simpler 16% framing. The effect is a price hike. The mechanism is a refund the importer no longer gets.
This is the part that does not add up. On 3 February 2026, the Ministry of Roads and Transport launched the National Electric Mobility Policy at KICC. The policy explicitly listed the Finance Act 2025 zero-rating as a cornerstone incentive and promised more fiscal support, not less. In April, Treasury Cabinet Secretary John Mbadi told the National Assembly’s Finance Committee that the government was cancelling a planned order for 2,500 petrol and diesel vehicles and replacing it with 3,000 locally assembled EVs. We already covered that announcement here and noted that the upcoming finance bill would determine whether tax incentives would make electric cars competitive for ordinary buyers.
The Finance Bill 2026, published two weeks later, moves in the opposite direction.
The numbers being undermined are not small. Kenya registered 39,324 EVs cumulatively by 2025, up from 1,378 in 2022, a more than 2,700% jump in three years. The boda boda segment leads. BasiGo started local assembly of its Ma3e electric vans with Associated Vehicle Assemblers in Mombasa earlier this year. Roam runs its bus assembly through Kenya Vehicle Manufacturers in Thika and its motorcycle plant on Mombasa Road. Spiro and Ampersand are scaling battery-swap networks. All of them planned around a zero-rated VAT regime that was less than a year old.
Kenya does not manufacture lithium-ion battery cells. There is no local industry being protected by adding cost to these imports. The usual argument for tariffs or VAT on imports leans on shielding a local equivalent. There is no local equivalent to shield. The cost lands on the buyer, and the buyer is often a boda boda rider, a sacco operator, or a household running a solar home system.
The wider tax picture matters too. Fuel is taxed. Electricity is taxed. Mobile money is being lined up for 16% VAT in the same Finance Bill. Smartphones are facing a proposed 25% excise duty under the same bill, with the duty point moved from import to activation. Card networks, payment switches and software royalties are being expanded into the tax net. The Treasury is targeting an additional KES 120 billion from these reforms, up from KES 30 billion under the Finance Act 2025. The pressure to find revenue is real. Whether the only industry that can credibly reduce Kenya’s roughly US$5 billion annual petroleum import bill is the right place to look for it is a different question.
We already reported that diesel hit a record KES 242.92 per litre in Nairobi from 15 May. Bolt has pushed fares up 6%. Matatu operators have been floating fare hikes of 15% to 20% per cycle. The economic case for shifting road transport to electricity, where Kenya generates more than 90% of supply from local renewable sources, has never been stronger. Increasing the landed cost of EVs and batteries at this exact moment slows the only credible alternative to imported diesel.
Operators considering whether to switch from diesel to electric run the total cost of ownership numbers. If the up-front price goes up because input VAT is now trapped in the supply chain, the calculus tilts back toward the familiar diesel option. The momentum that took registrations from 1,378 to 39,324 in three years was driven in part by the very tax breaks now being unwound.
There is a cleaner version of this policy available. Parliament can keep electric vehicles, batteries, charging equipment and e-bikes at zero-rated status, where the Finance Act 2025 put them. The Treasury can find revenue from sectors that are not the country’s own stated industrial bet. Public participation on the Finance Bill 2026 is open, with the National Assembly inviting memoranda before the Departmental Committee on Finance and National Planning ahead of the 1 July 2026 effective date.
For now, the proposal stands. Kenya launched an e-mobility policy in February promising tax incentives. The Treasury cancelled a petrol fleet order in April in favour of 3,000 EVs. Two weeks later, the Finance Bill rolled back the tax break that made the policy work. If the goal is to grow an industry that cuts the fuel import bill, creates assembly jobs and runs on domestically generated renewable electricity, the bill needs amending before assent. If it passes as drafted, the cost of going electric will go up at the exact moment the cost of staying on diesel has gone past what most Kenyans can absorb.
