35% Import tax proposed for construction materials

Kenya's construction industry is bracing for significant cost increases as the Treasury proposes a 35% excise duty on imported finishing materials in the Tax Laws Amendment Bill 2024. This new tax measure is poised to affect a wide range of construction materials, particularly those used in the final stages of building projects.

The proposed duty will primarily target ceramic tiles, sanitary ware, and various interior design materials. For tiles and ceramic materials, importers will need to pay either 35% or Sh300 per kilogram, whichever is higher. Similarly, sanitary fixtures will attract a duty of 35% or Sh100 per kilogram.

This tax increase comes at a crucial time when Kenya's construction sector heavily relies on imported materials due to the diverse range of designs and finishes required in modern construction. Local manufacturers currently cannot meet the full spectrum of market demands, making imports a necessity rather than a choice.

The Treasury's move is part of a broader strategy to raise Sh136 billion to address a substantial budget deficit of Sh344.3 billion. However, this decision raises concerns about its impact on the government's affordable housing agenda. Despite collecting Sh54.16 billion from the housing levy in its first year, only Sh16.65 billion has been directed toward affordable housing initiatives.

Industry experts warn that these increased costs will inevitably be passed on to consumers, potentially pushing property prices higher and making housing less affordable for many Kenyans. This development creates a challenging scenario where efforts to fund government initiatives might inadvertently hinder the achievement of affordable housing goals.

The construction sector now faces the complex task of balancing quality construction with cost management, as these new tax measures threaten to reshape the industry's cost structure and potentially slow down development projects across the country.