Kenya’s affordable housing sector is entering a more expensive era after the Finance Act 2026 withdrew key tax incentives that had underpinned the industry’s economics for years.
Effective July 1, developers have lost both the reduced 15 percent corporate income tax rate and VAT exemptions on construction inputs, forcing many to recalculate project costs midway through the financial year.
The corporate tax change is particularly significant. Since 2017, developers constructing at least 100 residential units annually paid corporate tax at 15 percent instead of the standard 30 percent.
A company making Sh100 million in profit previously paid Sh15 million in tax; it will now pay Sh30 million. The transition has also created administrative challenges, with many firms having already paid instalment taxes at the lower rate before the policy took effect.
Developers are also grappling with the removal of VAT exemptions on construction materials such as cement, steel and fittings. Inputs that were previously VAT-free are now subject to the standard 16 percent rate.
Because residential housing remains VAT-exempt, developers cannot recover this VAT, making it a direct cost that inflates project budgets. A project requiring Sh200 million worth of materials, for instance, now attracts an additional Sh32 million in unrecoverable tax.
The Finance Act has further widened excise duty to cover several imported finishing materials. Products such as particle boards, medium-density fibreboards (MDF), plywood and blockboards now attract a 30 percent excise duty, increasing the cost of cabinetry, joinery, ceilings and interior finishes.
Imported float glass has also been targeted, with a 35 percent excise duty or Sh500 per square metre, whichever is higher. The law also removes preferential treatment for glass imported from East African Community countries, potentially raising costs and creating regional trade concerns.
Bathrooms and flooring have not been spared. Imported sanitary ware, shower heads and ceramic tiles now face revised excise duties, with ceramic tiles shifting from an area-based tax to one based on excisable value or weight. The change is expected to increase costs, particularly for heavier flooring materials.
Taken together, these measures significantly raise development costs at a time when the government is seeking to expand affordable housing. Higher taxes on construction inputs, coupled with the loss of corporate tax incentives, are likely to squeeze developers’ margins and push up house prices.
While the changes will strengthen government revenue, they also test whether Kenya can continue delivering affordable homes without the tax incentives that have supported the sector for nearly a decade.
