The National Treasury has responded to Kenyans' concerns on a raft of proposals in the Finance Bill 2026.
The bill, published on May 5, is currently in the committee review stage, in which the Departmental Committee on Finance and National Planning is engaging members of the public and stakeholders to give their views.
In a significant retreat, some of the proposals have already been dropped from the Finance Bill 2026.
The proposed income tax on imported second-hand clothing, commonly called mitumba, is among the provisions that was dropped by parliament.
Section 12H of the Income Tax Act had proposed a new levy on income from the importation of worn clothing, worn footwear, and other second-hand articles classified under the 6309 tariff.
Originally, the proposal sought to introduce a presumptive tax framework on mitumba imports.
Under the plan, 5% of the customs value of imported mitumba goods would automatically be treated as taxable income at the point of importation. The government would then apply a one-off 30% income tax on that deemed profit, on top of the existing 16% VAT already charged at the point of entry.
In its defence, the National Treasury had argued that the proposal was aimed at formalising the largely informal mitumba sector, which has long been associated with under-declaration of income.
Traders strongly opposed it, warning that it would sharply increase the cost of second-hand clothing.
At the same time, the docket has also moved to shelve the Rental Income Tax, a proposal that sought to increase the monthly residential rental income tax rate from 7.5% to 10%.
The original Finance Bill 2026 had included the rental income tax hike as part of broader efforts to widen the tax base and improve compliance among landlords.
The Treasury had argued the increase would be supported by enforcement reforms, including agent-based withholding systems.
Critics, however, warned the measure could fuel rent increases for tenants, particularly in urban centres where the public is grappling with a high cost of living.
The Treasury also retained VAT for blood supplies under the 3002.90.00 tariff, specifically human blood and animal blood prepared for therapeutic, prophylactic, or diagnostic use.
The finance bill had sought to extend a VAT exemption to the medical supplies.
Elsewhere, the proposal to amend the definition of "import" under Section 2 of the Excise Duty Act has also been dropped.
It had been proposed that goods originating from countries in the East African region and which meet the EAC Rules of Origin would not be treated as imports for excise duty purposes.
Had it passed, the proposal would have provided a tax advantage for goods from the region meeting origin criteria.
The Treasury also revised the excise duty structure on the ceramic sanitary ware.
The original version of the bill had proposed changing the duty structure from 5% of customs value or Ksh200 per square metre to 5% of excisable value or Ksh50 per kilogram, whichever would be higher.
The removal of the per-kilogram specific rate leaves the duty framework less robust against undervaluation.
The proposal to delete section 6A(4) of the Tax Procedures Act, which suspended the application of provisions in international agreements or treaties relating to import duty on steel billets and wire rods for two years, has also been dropped.
The deletion would have reactivated treaty obligations and potentially opened the local steel market to greater competition, disadvantaging the local manufacturers.
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