Walk into M-KOPA's assembly plant on any given workday and you'll find around 500 workers producing up to 300,000 smartphones a month. Since the company launched local production in 2023, it has manufactured more than 3.5 million devices for Kenyan and regional markets. Sun King joined that momentum in October 2025, opening its own Nairobi plant as it expanded from solar products into smartphones. Both companies bet on Kenya becoming a regional electronics hub. Now, a single piece of legislation is putting that bet at serious risk.
Kenya's Finance Bill 2026 proposes removing the zero-rated VAT status that locally assembled phones currently enjoy, adding a 25% excise duty on domestically manufactured devices, and exempting imported finished phones from the Import Declaration Fee and the Railway Development Levy. The Kenya Association of Manufacturers has flagged the combined effect in a position paper seen by TechCabal, warning that the proposals will erase the competitive advantage that originally drew investment into local assembly. "The foundational tax structure underpinning the creation, growth, and sustainability of the industry will be eroded," the paper states.
The timing stings because Kenya deliberately built this industry. The Finance Act 2022 introduced zero-rated VAT on locally assembled phones specifically to attract manufacturers and bring smartphone prices down. The new proposals now flip that logic entirely, making imports cheaper while raising the cost of building locally.
The practical consequences could hit consumers quickly. Under the new VAT structure, local assemblers would be unable to recover tax paid on components, spare parts, and electricity, and those costs would likely be passed on to buyers. The 25% excise duty alone could push device prices up by KES 2,500, roughly $20. Companies would also have to reverse previously claimed input VAT on existing inventory, adding pressure to their working capital.
The KAM paper warns that without intervention, the proposals could lead to factory closures and job losses, and quietly chip away at Kenya's broader digital economy ambitions. Parliament still has to pass the Finance Bill, so there is a window for the industry to push back. Whether that pressure lands before the bill does is the question to watch.
Originally published by TechCabal.