Scrap dealers welcome 1.5pc withholding tax proposal

Scrap metal dealers will be required to part with a 1.5 per cent withholding tax from sales starting in July if the Finance Bill 2026 sails through.

The Bill has proposed the reintroduction of a withholding tax on the sale of scrap metals at the rate of 1.5 per cent for both locally sourced and imported scrap.

This proposal is in an effort to broaden the tax base by bringing additional revenue-generating sectors into the income tax framework.

Despite critics pushing back that taxing small-scale scrap metal traders at withholding tax rates is inconsistent with the National Tax Policy on the exclusion of subsistence-level economic activity, scrap metal dealers have welcomed the proposal. 

According to the Scrap Metal Dealers Association (SMDA), the proposed amendment in the bill is an advantage to the scrap metal sector and broadens the tax base for the exchequer. 

The dealers now want importers to be taxed double Value Added Tax (VAT), noting they bring materials that already exist in the country.  

SMDA Chairman Evans Ng'ang'a noted that the 1.5 flat rate reduces incentives for informal trading, making all dealers equal. 

“We support the proposed VAT exemption in totality and the introduction of a 1.5 per cent turnover tax,” Ng'ang'a said, noting that VAT is precarious, and the sector prefers paying tax on gross sales. 

“Importers too have to pay the turnover tax. In fact, those, because they are diluting the market, should actually be put in the bracket of double taxation,” Ng'ang'a said, noting imports must be subject to VAT. 

Defending their stand, scrap dealers said manufacturers are the ones responsible for the consumer, not the scrap dealers.

“It is up to them to see how that is going to trickle down to their consumers, not us," said Ng'ang'a. 

And while manufacturers want the provision to tax turnover on imports deleted, scrap metal dealers have retaliated, saying “the only difference we have with manufacturers is that they have been laying the VAT on us, which has been very precarious”. 

“We want them to pay the VAT. You cannot double tax scrap metal. Scrap is paid as per somebody's turnover. You cannot expect somebody selling 100 kilos of scrap and somebody manufacturing hundreds of thousands of tonnes to be in the same bracket. We have to distinguish,” Ng'ang'a said. 

He further noted that a high VAT burden combined with under-reporting of transactions and cash-based trading and weak documentation has undermined tax compliance and created distortions between formal and informal market players. 

The Kenya Human Rights Commission wants the proposal to be revised to adopt a minimum threshold of Sh50,000 per transaction before withholding tax applies to exempt subsistence waste pickers from the proposed 1.5 per cent tax. 

The Kenya Association of Manufacturers (KAM) has proposed the removal of the tax on imported scrap metals. 

The lobby has also suggested that importers of scrap metal pay several local taxes, including VAT, import declaration fee, railway development levy, Pay As You Earn (PAYE), and corporate tax, adding that withholding tax on foreign scrap that cannot be offset becomes a cost to the manufacturer. 

The reintroduction of the 1.5 per cent withholding tax in the Finance Bill marks the third legislative change relating to the taxation of scrap metal transactions within the past three years.

The provision was initially introduced through the Tax Laws (Amendment) Act, 2024, subsequently repealed by the Finance Act, 2025, and is now proposed to be reintroduced to take effect starting July 2026. 

“The frequent changes in tax treatment undermine predictability and create uncertainty for businesses operating in the industry," said KAM. 

And while the bill proposes a flat rate for both resident and non-resident persons, the tax on resident persons can be offset against the total tax liability. 

However, for non-resident persons, this is treated as a final tax and, therefore, cannot be offset. 

Manufacturers have lamented that this is an extra cost to the importer of the critical raw material, which, in turn, increases the cost of the final output. 

“The Tax discourages investors who wish to invest in Smelting activities,” KAM Chief Executive Tobias Alando said. 

"Removal of the withholding tax on the sale of scrap by non-residents will create a level playing field for Smelters who are doing captive production using scrap metal." 

Kenya’s scrap metal sector, primarily driven by the construction and manufacturing sectors, heavily supports steel production, construction activities and manufacturing. 

The sector, however, has been heavily burdened by strict compliance pressures, vandalism, smuggling, fragmented supply chains, regulatory challenges and VAT compliance pressures. 

The scrap dealers' lobby has recommended exempting qualifying scrap metal transactions from VAT and bringing them under a fair final tax regime that reflects the economics of the markets more accurately. 

SMDA projects that if the provision takes effect, it could reduce the prices of scrap.