Addressing the tax regime in the pharmaceutical industry

The Kenya Kwanza government promised to address the tax regime in the pharmaceutical industry.

• Steps taken to address the pharmaceutical industry’s tax regime, primarily through the Finance Act 2025, which introduced changes to the VAT refund system and reiterated a commitment to boosting local medicine manufacturing from 20% to 50% by 2026. This focus on local production is supported by initiatives such as the Kenya Local Manufacturing Strategy and efforts to combat counterfeits, alongside a new Kenya–Pfizer Accord aimed at reducing medicine costs by up to 60%.
• However, these changes also bring significant challenges, including a potential increase in medicine prices due to the reclassification of pharmaceutical raw materials from zero-rated to VAT exempt, impacting affordability for citizens. Additionally, the removal of investment allowances may deter crucial capital investments, while persistent reliance on imports and the administrative burden of shortened VAT refund periods threaten to impede the sector’s growth and stability, potentially leading to drug shortages and hindering progress towards Universal Health Coverage.