As Parliament considers the Finance Bill 2026/2027, a proposal to exempt scrap metal from VAT while introducing a 1.5 percent withholding tax is generating a major concern among stakeholders in Kenya’s manufacturing, construction, transport, and recycling sectors.
The proposal is intended to support recycling, formalise the scrap industry, and simplify tax administration. However, stakeholders warn that the move may instead increase production costs for steel makers and eventually raise the cost of construction materials.
Under the current VAT system, manufacturers purchasing scrap metal (amajor cost of sale) are able to recover VAT through input tax credits, ensuring that VAT does not become a direct production cost.
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