Tax | Telecommunications & Digital Economy
On 5 May 2026, the National Treasury tabled the Finance Bill, 2026. Two coordinated amendments will fundamentally restructure how mobile phones are taxed in Kenya. The Value Added Tax Act, Cap. 476 is amended to add telephones of tariff heading 8517 to the First Schedule as an exempt supply. In parallel, sections 6 and 36 of the Excise Duty Act, Cap. 472 are amended to impose excise duty at 25% of the excisable value on telephones for cellular and other wireless networks, with the taxable event shifting from importation or manufacture to activation on a mobile network. These mobile-phone amendments, if passed, would take effect on 1 January 2027, ahead of the bulk of the Bill which takes effect on 1 July 2026.
VAT OUT, EXCISE IN
- The current law: An imported smartphone bears import declaration fee, railway development levy, customs duty, 16% VAT, and existing excise duty, all crystalizing at the border. The Treasury has estimated the cumulative incidence at approximately 55% of landed cost.
- The proposed law: VAT falls away on the device itself, and a single 25% excise duty applies when the device is first activated on a Kenyan mobile network.
- Policy objective: Consolidation rather than additional revenue. The activation trigger is designed to capture grey-market and informally imported devices that previously escaped border taxation.
WHY IT MATTERS
- The shift to an activation-based charge is the more consequential of the two changes.
- Excise duty in Kenya has historically been a manufacturer or importer tax, settled at a defined statutory moment. Activation is different. It happens after the supply chain has closed, and it is observed by mobile network operators rather than the Kenya Revenue Authority.
- The Bill leaves three architectural questions unanswered:
- Who bears the remittance obligation.
- How the excisable value is to be determined at activation rather than at import.
- How pre-activated devices, eSIM-only devices, and devices activated abroad but used in Kenya are to be treated.
- Implementing regulations are expected to fill the gap, but the Bill itself leaves the architecture open.
WHO WINS, WHO PAYS
- Mobile network operators. The most exposed. If, as appears likely, operators become collection agents at the point of activation, they will need to build IMEI-level tax determination, billing, and remittance systems, and to manage liability for devices activated on their networks that they neither imported nor sold.
- Importers and distributors. Gain a working-capital benefit at the border but face new commercial risk, since the excise burden will sit with a downstream party rather than being embedded in landed cost.
- Retailers. Should expect renegotiation of dealer arrangements and clearer allocation of tax risk in supply contracts.
- Consumers. Will see VAT removed at point of sale but a separate activation charge on first use, with net price effect depending on operator pass-through.
- Investors and lenders. Those in telecom, fintech, and device-finance segments should reassess unit economics, particularly device-financing and pay-as-you-go handset models that rely on predictable end-user pricing.
WHAT TO DO NOW: ACTION BEFORE 1 JANUARY 2027
- Legislative window. The Bill is before the Departmental Committee on Finance and National Planning, with public participation underway. The deadline for submissions is 25 May 2026.
- Memoranda to Parliament. Affected stakeholders should consider submitting memoranda on the open implementation questions:
- The identity of the taxable person.
- The treatment of cross-border activations.
- The valuation methodology.
- Interaction with the existing 10% excise on airtime and data.
- Contract review. Existing distribution contracts, dealer agreements, and device-financing arrangements should be reviewed for clauses that allocate indirect-tax risk. The change of taxable moment may shift exposure in ways the original drafting did not contemplate.
- Operational scoping. Operators and importers should begin scoping the systems, contractual, and tariff-classification work that the 1 January 2027 commencement date will require.