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Finance Bill signals expensive locally assembled mobile phones
Latest data from the Communications Authority of Kenya (CA) shows that the number of smartphones in active use stood at 41.5 million at the end of last December, up from 37.4 million last September, representing a 10.9 percent growth.
The Treasury proposes to exempt the supply of locally assembled and manufactured mobile phones from value-added tax (VAT), moving it from zero-rated treatment, signalling weightier costs for consumers.
“…section A of part I of the first schedule to the VAT Act is amended by adding ‘the supply of locally assembled and manufactured mobile phones,” reads the Finance Bill 2025.
The referenced schedule in the mother Act pertains to items listed as exempt from VAT.
Exempt supplies are not subject to VAT and do not allow recovery on related costs, while zero-rated supplies are taxed at zero percent but still permit reclaims on inputs.
Businesses dealing in zero-rated goods can reclaim input VAT, potentially lowering costs, whereas those offering exempt goods cannot, which may lead to higher operating expenses.
If adopted by Parliament, the proposals contained in the Finance Bill 2025 risk hurting one of President William Ruto’s pet goals of enhancing digital access with affordable devices.
At the infancy stages of his administration, President Ruto spelt out an ambitious plan to accelerate the local manufacture and assembly of smartphones as part of a government-led programme to upscale digital connectivity.
The State later set up a Safaricom-led joint-venture consortium that also comprised Jamii Telecom and Chinese mobile devices Shenzhen TeleOne Technology, with a promise for low-cost smartphones on the Kenyan retail shelves.
At the time, the players estimated that the devices would retail at around $40 (about Sh5,200 at current conversion rates), touted as the lowest price on the continent.
However, a study commissioned jointly by the Centre for International Private Enterprise and the Kenya Private Sector Alliance last year found the devices were retailing at up to Sh10,559.
Latest data
According to the study, output VAT and import duty drove up the prices of the locally assembled phones.
The East Africa Device Assembly Kenya in Athi River, the consortium’s assembly factory, is one of the only two companies assembling phones locally alongside asset financing firm M-Kopa.
During the facility launch in October 2023, the firm indicated the plant would produce up to three million mobile phones annually.
The proposed shift of locally-made mobile devices to VAT-exempt comes when Kenyans have accelerated the uptake of smartphones, purchasing a historic 4.1 million pieces during the three months that ended last December.
The latest data from the Communications Authority of Kenya (CA) shows that the number of smartphones in active use stood at 41.5 million at the end of last December, up from 37.4 million last September, representing a 10.9 percent growth.
Demand for smartphones in Kenya and the entire East Africa region is certain to climb amid ongoing shifts toward digital economies where the bulk of transactions, including government services are now online.
