New Excise Duty clause in Finance Bill threatens Sh350b trade in EAC

A clause in Kenya’s Finance Bill 2026 could wipe out a third of Sh350 billion in regional trade, manufacturing executives have warned, even as President William Ruto  publicly advocates for a borderless East Africa.

The proposed legislation seeks to delete exemptions that for decades have allowed goods originating from East African Community (EAC) partner states to enter Kenya free of excise duty. The bill instead aims to apply the same levies to Ugandan and Tanzanian imports as those from China or Europe.

“This puts at risk 30 per cent of Kenyan exports which go to EAC Partner States,” warned Kenya Association of Manufacturers (KAM) Chief Executive Tobias Alando in a parliamentary submission. The manufacturing sector directly employs 388,564 Kenyans, accounting for 11.7 per cent of formal jobs.

Data from the 2026 Economic Survey shows Kenya’s exports to its EAC partners rose to Sh351.2 billion in 2025, accounting for 77.6 per cent of the country’s total shipments to Africa.

The proposed amendments to the First Schedule of the Excise Duty Act target a diverse range of essential products including glass, plastics, paper, furniture and ceramics. According to the Bill, these goods would now face the same excise duty as imports from outside the region.

The timing has been described as contradictory. Barely two weeks before the Bill’s publication, President Ruto and his Tanzanian counterpart Samia Suluhu Hassan had pledged to scrap all non-tariff barriers by June 30, 2026.

For Tanzania’s Ltd , a glass manufacturer, the change is potentially devastating. General Manager Vineet Verma said in a public protest letter that the proposed 35 per cent excise duty on imported glass bottles would add an estimated Sh996 million (22 million) in extra costs per year. 

Verma warned that this cost increase would make Kioo’s glass bottles too expensive to compete in the Kenyan market, forcing the company to either lose most of its market share to Kenyan producers or absorb the losses — a move that would make its exports financially unsustainable and could lead to job cuts at its Tanzanian plant. 

He added that if duty is implemented, Kioo may be forced to reduce or cease exports to Kenya entirely, disrupting the supply of glass bottles to Kenyan beverage and pharmaceutical manufacturers who currently rely on imports to meet domestic demand.

“Kenya cannot supply itself,” Verma noted. The country’s container-glass market demands about 120,000 tonnes a year, while its two domestic producers can make only around 63,000 tonnes — leaving roughly half the market dependent on imports.

Kenya imposed a near-identical 25 per cent excise duty in 2020, but Kioo successfully challenged it at the East African Court of Justice, which ruled it discriminatory.

Manufacturers argue the tax proposals directly violate Kenya’s obligations under the EAC Customs Union Protocol, which mandates free movement of locally produced goods within the bloc.

“The proposed amendments would delete the EAC carve-out from over twenty tariff descriptions,” KAM’s memorandum stated. “This is retrogressive and could trigger retaliatory measures from partner states.”

Kenya’s trade deficit with the EAC widened significantly in 2025. According to the Economic Survey 2025, while Kenya’s exports to the bloc grew, imports also surged, notably for sugar, glass and industrial materials.

The Survey shows that Kenya’s imports from Africa increased from Sh270.7 billion in 2024 to Sh283.5 billion in 2025, with imports from Uganda rising 24.5 per cent and those from Eswatini (a fellow EAC and Comesa member) surging by 28.4 per cent, largely driven by sugar.

Uganda’s trade ministry has already amended its laws to define local raw materials as those originating from any EAC partner state, a move that effectively subjects Kenyan exports to higher tariffs in Uganda if Nairobi proceeds with its excise plans.

The National Treasury has defended the tax hikes as necessary for revenue mobilisation, with the government targeting a 19 per cent tax-to-GDP ratio. However, industry calculations suggest the net gain from the EAC excise clause may be marginal compared to the potential loss of export markets.

The Excise Duty Act’s First Schedule lists dozens of goods whose current exemptions are being stripped. Players reckon that for key industrial inputs where Kenya has no local production, the tax will be passed on to consumers. 

For example, Kenya has no domestic float glass production. Consequently, ten local glass processors have see output fall more than 70 per cent, and about 2,000 workers face redundancy.

Beyond the regional clause, manufacturers are opposing a host of other measures. KAM is warning that shifting key industrial inputs from zero-rated to exempt VAT status would block manufacturers from reclaiming input VAT on raw materials, effectively inflating production costs across agro-processing, pharmaceuticals, and packaging.

“Manufacturing contributes about 7.1 per cent of GDP, employe 388,564 Kenyans directly in 2025 and contributes at least 18 per cent of taxes,” KAM’s memorandum noted. “Such frequent changes increase business uncertainty.”