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Members of Parliament are now moving to amend a recently passed bill after it led to unforeseen negative consequences.
President William Ruto assented to the Tax Laws (Amendment) Act, 2024, in December, which then sparked backlash from key stakeholders due to its economic impact, particularly within the energy sector.
The law imposed a 25% excise duty on imported electric transformers and float glass in a bid to raise additional revenue and protect local manufacturers of electric transformers.
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However, the government has realised that the country does not have local manufacturers of transformers.
“It was noted that the firms indicated as local manufacturers were actually assemblers, not manufacturers,” reads the report by the Departmental Committee on Finance and National Planning, headed by Molo MP Kimani Kuria.
New Bill & Stakeholder input
The National Assembly is now considering the Excise Duty Bill (NA Bill No. 7 of 2025), which seeks to reverse the excise duty imposed on transformers.
The National Assembly Departmental Committee on Finance and National Planning invited stakeholders to submit their proposals on the new bill.
Kenya Power has supported the reversal of the excise duty, noting that the 25% tax on imported electric transformers would significantly increase the cost of electricity distribution in the country.
The increased costs are expected to be passed on to consumers, leading to higher electricity tariffs and placing a financial strain on both businesses and households.
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“Considering the budget constraints and cash flow implications, increasing the cost of transformers through the introduction of 25% excise duty will reduce the actual number of transformers that can be procured within the current budget and cash flow position of KPLC. This implies that there will be an increase in prolonged outages across the country due to the unavailability of sufficient transformer stocks,” Kenya Power submitted to the National Assembly.
The Institute of Public Finance (IPF) and the Institute of Chartered Public Accountants of Kenya (ICPAK) both raised concerns about the adverse economic impact, particularly on the cost of living.
The amendments proposed in the earlier act were seen as a burden on businesses reliant on electric transformers, driving up production costs and potentially stifling economic growth.
In a series of submissions, companies like Yocean Group Ltd and Pan Africa Transformers and Switchgears Ltd highlighted that the excise duty would result in a substantial increase in the cost of doing business.
The companies also pointed out that this could affect their competitiveness in both the regional and international markets.
Committee recommendations
The committee responsible for reviewing the bill has acknowledged the backlash and agreed that amendments are necessary.
MPs noted that Kenya is still in the infancy stage in the manufacturing of transformers because most of the transformer parts are not manufactured locally and therefore kenya firms ordinarily assemble imported parts of the transformers.
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In response to these mounting concerns, the committee has proposed further consultations with industry stakeholders.
In the coming weeks, Parliament will review the proposed changes, and with the backing of the whole house, the new bill could reverse the transformer tax introduced by the Tax Laws (Amendment) Act, 2024, ensuring that the excise duties are more in line with the economic realities of the country.