MPs uphold 15% tax incentive for construction companies, vehicle assemblers

The National Assembly Finance Committee has rejected the proposal by the National Treasury to scrap a 15 percent tax incentive for real estate developers and local motor vehicle assemblers in the 2025 Finance Bill.

The proposal seeks to amend the Third Schedule to the Income Tax Act to repeal the preferential tax rate given to companies engaged in the construction of at least 100 residential units annually.

Additionally, the Treasury wants to do away with a similar incentive applicable to all businesses engaged in the local assembly of motor vehicles.

During the bill’s public participation exercise, stakeholders in the construction and vehicle assembly industries opposed the proposal, arguing that it would discourage investment.

The Finance Committee, in a new report on the proposed legislation, notes that after deliberation, it agreed with the stakeholders’ concerns. It urges MPs to delete the two proposals.

“It would disincentivize investment in the real estate sector and result in a possible increase in housing prices especially for those under the affordable housing agenda due to higher developer costs,” the Molo MP Kuria Kimani-led team notes.

Regarding the bid to remove the corporate tax incentive on local vehicle assemblers, the committee points out that it is likely to harm the local automotive industry.

“This is in keeping with predictability and stability within the tax system and fostering a more favourable business environment,” the lawmakers say.

Treasury Cabinet Secretary John Mbadi presented the Ksh.4.2 trillion 2025/26 budget in Parliament last week.

Mbadi’s ministry hopes to raise up to Ksh.30 billion in extra revenues from this year’s finance bill, which MPs are expected to vote on before it is sent to President William Ruto for approval.

Ruto's government has, however, not introduced new taxes in the proposed law, following last year's deadly protests against tax hikes in the 2024 Finance Bill.