Finance Bill 2026: Scrap dealers back VAT exemption, withholding tax changes

The sector has particularly lauded the introduction of a withholding tax and the removal of VAT on scrap metal transactions.

The changes target transactions within the sector by introducing a 1.5 per cent withholding tax at the point of sale. Under the proposal, a buyer purchasing scrap metal worth Ksh.100,000 would deduct Ksh.1,500 and remit it directly to the government, leaving the dealer with Ksh.98,500.

“What we have in the current Finance Bill 2026 is advantageous to the scrap metal industry and we want to encourage it,” said Evans Ng’ang’a, Chairperson of the Knight Scrap Metal Dealers Association.

“Our recommendation is to strengthen formalisation and reduce tax compliance risk. Qualified scrap metal transactions could be exempted from VAT and brought under a fair tax regime that more accurately reflects the economics of the market while supporting compliance and revenue collection.”

The Bill also proposes the removal of Value Added Tax (VAT) on scrap metal by changing it from a VAT-recoverable item to a VAT-exempt one.

Dealers argue that the two measures will reduce administrative burdens, lower compliance costs and create a more predictable operating environment for businesses.

“With a turnover tax, the government stands to gain in revenue collection as the majority of scrap dealers will join the tax bracket. We prefer the turnover tax because you are paying tax on turnover, and the tax bracket is going to widen because virtually everybody, from collectors to dealers, will be able to remit their taxes on turnover. We therefore support the proposed VAT exemption in totality,” stated Ng’ang’a.

The industry remains hopeful that the reforms will strengthen Kenya’s recycling value chain and support investment, jobs and environmental sustainability.

Even as stakeholders express optimism about the proposed reforms in the budget, they are calling for clear implementation guidelines to ensure the changes deliver the intended benefits.