Kenya’s Finance Bill 2026 puts local phone assembly under pressure as tax reforms reshape smartphone market

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Kenya’s proposed Finance Bill 2026 is sparking concern across the country’s emerging electronics manufacturing sector, with new tax proposals that could significantly reshape the economics of local smartphone assembly for companies like M-KOPA and Sun King.

According to details of the bill published by Kenya’s National Assembly and analyzed by industry stakeholders, the proposed changes include removing the zero-rated VAT status previously applied to locally assembled mobile phones and introducing a 25 percent excise duty on mobile devices produced within the country. At the same time, imported finished smartphones would benefit from the removal or reduction of certain import-related levies, including the Import Declaration Fee and Railway Development Levy, depending on the final legislative outcome.

The changes represent a sharp departure from the tax framework introduced in earlier reforms, particularly the Finance Act 2022, which had been designed to encourage local manufacturing through tax incentives such as zero-rated VAT on locally assembled devices.

If enacted in its current form, the new structure would narrow, or potentially erase, the cost advantage that had made local assembly economically viable for manufacturers operating in Kenya.

M-KOPA, one of the country’s most established pay-as-you-go asset financing companies, entered smartphone assembly in 2023, building a facility in Nairobi aimed at serving both domestic and regional markets. The company has since produced millions of devices, positioning itself as one of the largest local assemblers in the country.

Sun King, better known for its solar energy products, expanded into smartphone assembly more recently, opening a Nairobi facility in 2025 as part of its diversification into mobile technology manufacturing.

Industry stakeholders, including the Kenya Association of Manufacturers (KAM), have warned that the proposed tax structure could undermine the competitiveness of local production. In submissions cited in industry reports, KAM argued that removing VAT incentives while maintaining or increasing duties on locally assembled devices could significantly increase production costs and reduce Kenya’s attractiveness as a manufacturing hub.

Under the proposal, locally assembled phones would also face a 25 percent excise duty, a measure that industry players say could raise retail prices and place additional pressure on companies that rely on thin-margin, high-volume production models.

The concern is not just about pricing, but about the structure of Kenya’s broader industrial policy. Over the past few years, the government has positioned local smartphone assembly as part of its digital economy strategy, aiming to reduce reliance on imports, create manufacturing jobs, and expand access to affordable devices.

That strategy has already begun to show early results. Assembly operations in Kenya have created hundreds of manufacturing jobs and supported the rollout of locally assembled devices across East Africa, particularly through financing-led distribution models targeting low-income consumers.

However, the Finance Bill 2026 signals a potential recalibration of that approach, as the government seeks to broaden its tax base and increase revenue collection amid fiscal pressures.

Treasury officials have defended aspects of the wider tax reform agenda, arguing that the changes are aimed at simplifying Kenya’s tax system and improving compliance across sectors. However, industry groups maintain that the specific impact on electronics manufacturing could reverse recent gains in local production capacity.

As the bill moves through parliamentary debate and public participation, its final structure remains subject to change. But for Kenya’s young smartphone assembly sector, the direction of policy has already raised uncertainty about whether the country will continue to incentivize local production—or shift toward a more import-friendly tax regime.

What is clear is that the outcome of the Finance Bill 2026 will play a defining role in shaping the future of Kenya’s ambitions to become a regional electronics manufacturing hub.