Addressing the tax regime in the Pharmaceutical Industry
The Kenya Kwanza government promised to work with the pharmaceutical industry to address the tax regime and cost of doing business.
While there was a proposal to move raw materials for the production of pharmaceutical products from Zero-rated to Tax-Exempt in the 2025 Finance Bill, the proposal was not carried forward to the Finance Act.
March 2026: Health CS Aden Duale convened a meeting and launched a forthcoming National Local Manufacturing Strategy (2026–2030) that aims to ramp up local pharmaceutical manufacturing to strengthen health security and attract investment.
In the 2026 Finance Bill, the government again proposed changing the VAT treatment of pharmaceutical raw materials from zero-rated to exempt. This would prevent manufacturers from recovering VAT paid on inputs such as raw materials, packaging and other production costs, potentially increasing the cost of locally manufactured medicines. The proposal attracted opposition from manufacturers and the wider private sector because it was considered inconsistent with efforts to make local production more competitive.
Moreover, as at February 2026, businesses were owed at least Ksh. 35 billion in outstanding VAT refunds, a situation that continues to strain cash flows and discourage both export growth and business expansion.
Finally, the Finance Act 2026 that was enacted retained the exemptions for pharmaceutical inputs proposed by the 2026 Finance Bill.
