Explainer: What Ruto’s new tax laws mean for motorists, builders and KRA

NAIROBI, Kenya, Oct 16 — President William Ruto has signed two tax laws overhauling the financing and governance of the Kenya Revenue Authority (KRA), changing the taxation of construction materials and allowing the extension of the reduced 8 per cent VAT rate on petroleum products for a further 90 days.

The Tax Laws (Amendment) Act, 2026, extends the reduced Value Added Tax (VAT) rate on petroleum products from 16 per cent to 8 per cent for another 90 days, while introducing changes to the taxation of selected construction materials.

The Kenya Revenue Authority (Amendment) Act, 2026, changes the composition of KRA’s board and establishes a funding framework tied to projected revenue and collections above quarterly targets.

The measures are intended to cushion consumers against high fuel prices, ease construction costs and improve revenue collection without introducing additional taxes.

However, their practical impact will depend on how the provisions are implemented and whether the intended benefits reach consumers and businesses.

1. What does the fuel VAT extension mean?

The new law maintains VAT on petrol, diesel and kerosene at 8 per cent, down from the standard 16 per cent, for an initial 90 days.

The Cabinet Secretary for the National Treasury may extend the reduced rate for a further 90 days if necessary.

The extension follows the expiry on October 14 of an earlier 180-day relief measure introduced in April to cushion consumers against rising international petroleum prices.

According to the briefing accompanying the signing, the new measure takes effect from midnight on October 14, 2026. This provision is significant because the Energy and Petroleum Regulatory Authority (EPRA) had already incorporated the 8 per cent VAT rate into its latest fuel-price review, announced on October 14 and effective from October 15.

Will fuel prices fall?

Not necessarily.

EPRA’s latest review raised Nairobi’s maximum retail prices to:

• Super petrol: Sh226.96 per litre, an increase of Sh12.93.
• Diesel: Sh227.76 per litre, an increase of Sh9.90.
• Kerosene: Sh219.87 per litre, an increase of Sh28.49.

The regulator attributed the increases to higher landed costs of imported refined petroleum products.

The VAT reduction limits the tax component of fuel prices compared with what would apply at the standard rate, but it does not eliminate increases arising from international oil prices, exchange rates, freight and other costs.

The government has said the extension is intended to prevent a sharper increase in fuel prices and cushion households against higher transport costs and the prices of essential goods and services.

What motorists should watch: Whether the relief is maintained beyond the initial 90 days, whether Treasury exercises its extension powers and how subsequent EPRA reviews reflect changes in international petroleum costs.

2. How does the law change taxes on construction materials?

The Tax Laws (Amendment) Act also changes the taxation of selected construction materials, with potential implications for developers, contractors and households building homes.

The amendments target tiles, sanitary ware and glass products.

Tiles

The law changes the basis for calculating excise duty on tiles from weight to size, reflecting how the products are commonly sold.

The previous weight-based system had increased costs following its introduction in June.

The revised approach is intended to align taxation with the commercial measurement of tiles and ease pressure on construction costs. The accompanying legislative brief identifies a rate of Sh400 per square metre under the revised system.

Sanitary ware

Excise duty on sanitary ware is reduced from Sh50 to Sh30 per kilogramme.

The products covered include ceramic sinks, wash basins, baths, bidets, water closet pans, flushing cisterns and urinals.

The reduction is intended to ease the cost of these fittings in residential, commercial and public construction projects.

Glass products

The legislation also addresses the excise-duty treatment of glass products from East African Community countries, including imported float glass.

The changes seek to align the tax treatment with the applicable regional customs framework and avoid subjecting qualifying products to excise duty contrary to the East African Community Customs Protocol.

Will building become cheaper?

The changes could lower some construction expenses, but the extent of any savings is not yet established.

The final price paid by a consumer also depends on manufacturers, importers, distributors, retailers, transport and other business costs.

For homeowners and developers, the key test will be whether the tax reductions translate into lower retail prices for tiles and sanitary fittings.

3. What changes under the new KRA law?

The Kenya Revenue Authority (Amendment) Act, 2026, introduces changes to the tax agency’s board and establishes a funding framework intended to strengthen its operations.

The measures focus on institutional coordination, predictable financing and incentives linked to revenue collection.

Changes to the KRA board

The law changes the composition of the KRA board, including the addition of the managing director of the Kenya Ports Authority (KPA).

The aim is to strengthen coordination between tax collection, customs administration and port operations, which are closely linked in the collection of import-related revenue.

The amendments also provide for substantive membership of board officials who previously served in an ex-officio capacity.

A guaranteed allocation for KRA

The law guarantees KRA funding equivalent to at least 2 per cent of the revenue projected to be collected in the annual financial estimates.

The provision establishes a funding formula linked to projected revenue rather than leaving the authority’s allocation entirely to the existing budget process.

The intended benefit is to provide more predictable financing for the authority’s operations.

However, the ultimate effect will depend on how the allocation is calculated, budgeted and spent.

Incentives for exceeding quarterly targets

The law also provides an incentive equivalent to 3 per cent of revenue collected above the amount estimated for a given quarter.

The measure is intended to reward collections that exceed budgeted targets.

Its implementation will be important. The framework raises questions about how excess collections will be verified, how the incentive will be administered and what safeguards will ensure that revenue targets do not encourage inappropriate enforcement against taxpayers.

The amendment’s broader objective is to improve KRA’s efficiency and revenue collection without increasing tax rates.

4. Does the KRA law introduce new taxes?

The central changes in the KRA amendment concern governance, funding and incentives rather than the introduction of a new tax rate.

The law is intended to improve the administration and collection of existing taxes by strengthening coordination between KRA and other government institutions.

The government’s position is that more efficient revenue collection could reduce pressure to increase taxes.

However, improved collections do not automatically translate into lower taxes. That outcome would depend on government spending needs, revenue performance and future fiscal policy decisions.

For taxpayers, the important distinction is between a change in the amount of tax legally payable and a change in how effectively the government collects it.