Phones to remain expensive as treasury retains 25% import duty

Mobile phone prices in Kenya are set to stay high after the National Treasury chose to maintain the 25 per cent customs duty on imported devices, despite earlier expectations that the levy would be dropped in a bid to ease costs for consumers.

The decision means that smartphones entering the country will continue attracting a heavy tax burden, even after the government moved to adjust other charges in the latest budget announcement. Treasury Cabinet Secretary John Mbadi confirmed the changes while addressing Parliament during the budget presentation on Thursday.

In the earlier tax plan, the government had signaled a major shift that would see excise duty on mobile phones rise from 10 per cent to 25 per cent while scrapping several other taxes. This was expected to include removal of customs duty, VAT set at 16 per cent, the 2.5 per cent import declaration fee, and the 2 per cent railway development levy. If fully implemented, the changes would have brought the total tax on imported phones down to about 25 per cent.

However, the final budget statement did not include any proposal to eliminate the customs duty. Instead, Mbadi only confirmed removal of the other charges, leaving the 25 per cent import levy intact and maintaining the overall high cost of smartphones.

The Treasury has also shifted focus to strengthening local smartphone assembly, announcing that Kenya has applied for a customs duty waiver on imported components used in local manufacturing. The move is meant to support domestic production under the digital connectivity plan tied to the Bottom-Up Economic Transformation Agenda.

“To strengthen digital connectivity as part of the digital superhighway pillar for BETA (Bottom-Up Economic Transformation Agenda), the local assembly of smart devices remains a key priority,” Mbadi told the National Assembly.

“Expanding access to affordable smart telecommunications devices will enable Kenyans to participate in the digital economy and benefit from emerging opportunities in business and innovation.”

Although the government had initially defended the tax changes as a way of simplifying the system and improving compliance, the East African Community framework limits Kenya’s ability to independently remove customs duty. Any exemption must be approved by the EAC Council of Ministers.

Mbadi noted that Kenya submitted its customs-related proposals to Parliament on May 8 before forwarding them to the EAC on May 15. However, the specific request to scrap customs duty on imported phones was not part of the final submission, leaving the levy unchanged.

With the latest position, the total tax burden on imported mobile phones is expected to ease only slightly, dropping to about 50 per cent from the current 54.5 per cent, rather than the sharp reduction that had been anticipated.

At the same time, changes affecting local assemblers are expected to reshape production costs. Inputs used in assembling smartphones locally will no longer enjoy customs duty exemption and will now be treated under a zero-rating system rather than VAT exemption.

This shift has raised concern among manufacturers, who argue that it could increase production costs since they will no longer be able to recover input VAT on materials, components, and spare parts used in production.

The Kenya Association of Manufacturers told Parliament that changing locally assembled and manufactured phones from zero-rated to VAT-exempt status would block recovery of input VAT on both locally sourced and imported inputs. They warned that the cost would be absorbed into final device prices, making smartphones even less affordable for consumers.