Finance Bill 2026 to Cut VAT on Inputs for Flower Exporters

By Magdalene Wanja - Reporter

Kenya, 22 January 2026 - The government has unveiled a series of tax and regulatory reforms aimed at supporting agricultural exporters under the Finance Bill 2026, which is scheduled to be presented to the National Assembly in March.

The measures are intended to stimulate value-added flower production, reduce operational bottlenecks, and enhance the competitiveness of Kenyan exports in key international markets, particularly Europe and the United Kingdom, where demand for high-quality horticultural products continues to grow.

While announcing the reforms, Cabinet Secretary for Agriculture and Livestock Development Mutahi Kagwe said the government plans to cut input VAT from 16% to 8%, remove excise duties and export promotion levies on packaging materials, and fast-track VAT refunds through offsetting mechanisms.

Exporters whose entire output is sold abroad would also be eligible for treatment similar to that offered under Export Processing Zones (EPZ) and Special Economic Zones (SEZ), exempting them from VAT on locally sourced inputs.

The aim, he explained, is to lower production costs, provide a predictable tax environment, and align Kenya’s export regime with international best practices.

The reforms are designed, in part, to address challenges introduced by the Finance Act 2025, which exporters say undermined their competitiveness by forcing reliance on imported specialized materials. Local paper manufacturers, however, maintain that domestic production has sufficient capacity to meet industry demand, highlighting the potential for greater local sourcing.

In addition to tax and regulatory adjustments, the government plans to expand air freight capacity through Kenya Airways and additional international carriers, a move expected to improve the efficiency of exporting perishable horticultural products.

The CS spoke during at the launch of Flamingo Group Investments’ KSh 2 billion expansion project in Naivasha, which is set to create 500 new jobs.

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CS Kagwe emphasised that the reforms are intended to unlock billions of shillings in stalled exporter capital and accelerate investment across horticulture, tea, coffee, and livestock value chains.

He said these measures will strengthen Kenya’s competitiveness and further cement its position as Africa’s horticultural powerhouse.

The government is also moving to ease persistent cash-flow constraints faced by exporters due to delayed tax refunds.

It has already disbursed KSh 470 million toward settling Flamingo’s outstanding VAT refund backlog of KSh 1.8 billion, with additional payments expected in the coming months.

Industry stakeholders say the move will provide much-needed liquidity to support production, employment, and expansion plans.

If enacted, the Finance Bill 2026 would mark a significant shift in the tax landscape for agricultural exporters and form part of a broader strategy to boost foreign exchange earnings, strengthen agricultural value chains, promote local value addition, and support sustainable growth in the export sector.