The government has announced plans to remove the zero-rated Value Added Tax (VAT) status currently enjoyed by affordable housing projects, marking a significant shift in the taxation of one of its flagship development programmes.

In a press briefing ahead of the budget presentation in the National Assembly on Thursday, June 11, 2026, Treasury Cabinet Secretary John Mbadi said the proposed changes will be contained in the 2026 Finance Bill and are intended to enhance tax administration while sealing loopholes that have been exploited through the current incentive framework.

 At the same time, Mbadi said the government wants affordable housing projects moved from the zero-rated VAT category to a VAT-exempt status.

“That provision was put there to attract more investment into the affordable housing sector, but you also have to review when you tax like that; you continuously review its performance. If it is not adding much value to the economy, then it has no business being left,” the CS stated.

The Treasury boss explained that the zero-rated incentive was initially introduced to stimulate investment in the housing sector and encourage developers to increase the supply of affordable homes across the country.

However, he noted that tax incentives are subject to periodic review to assess whether they continue to generate the intended economic impact.

According to Mbadi, one of the major concerns facing the government is the difficulty of tracking materials imported or purchased under tax incentives meant for affordable housing developments, adding that authorities often face challenges verifying whether such materials are used exclusively for the intended projects.

“If you say, for example, cement for affordable housing you will not tax, how do you determine and ensure that the cement that has been bought is actually going to affordable housing and not elsewhere?” he posed

Additionally, Mbadi said similar concerns apply to other construction materials, including steel, which can easily be diverted to unrelated private developments despite benefiting from tax relief meant for affordable housing schemes.

He warned that weaknesses in monitoring and enforcement have created opportunities for abuse, exposing the government to substantial revenue losses through VAT refund claims linked to the programme.

“So those challenges we are trying to eliminate by removing zero rating and taking them to be exempt, so we are not going to tax them; we are putting them exempt so that we do not tax them,” Mbadi reiterated.

The proposed adjustment forms part of wider reforms contained in the Finance Bill 2026, which seeks to improve tax compliance, strengthen revenue collection systems and reduce opportunities for misuse of tax incentives across various sectors of the economy.