The Kenya Bankers Association has raised an alarm over a possible higher cost of loans for Kenyans if the Kenya Revenue Authority is allowed to add value-added tax on the sale of repossessed goods.
The association, while responding before a tax appeals tribunal on Sunday, May 24, KBA warns that the proposal captured in the 2026 finance bill will ultimately increase the cost of credit for borrowers across the country.
According to the Association, it will be pushing for amendments in the proposed Finance Bill 2026 to exempt such transactions from VAT.
“We are proposing that a specific provision be introduced as part of the first schedule of the VAT Act,” stated an official from KBA.
“We create a new paragraph that the sale disposal or realisation of collateral, repossessed assets or secured properties by or behalf of a financial institution where such sale disposal or realisation arises from enforcement of security in connection of a loan, or credit facility or other exempt financial service be part of the first schedule which exempt the financial service or any services from being charged vat,” she added.
The banks want the law changed to bar the Kenya Revenue Authority from demanding VAT on the disposal of repossessed collateral used to recover bad debts.
KRA has maintained that in auction sales of seized property, the creditor effectively steps into the shoes of the borrower and is therefore responsible for settling applicable taxes and levies.
The tribunal allowed KRA to continue with a 16 per cent VAT on the goods, something the bankers argue will severely affect them and their customers.
KBA argues that repossession and subsequent sale of collateral is not a profit-making activity but a recovery mechanism for unpaid loans, and should therefore not be treated as a taxable supply.
KBA warned that imposing VAT on such assets could distort the credit market and force banks to recover the additional costs from borrowers.
“If VAT on these assets continues, then banks will be forced to go back into their capital. It is not practical,” the representative said, adding that the cost of lending would likely rise as financial institutions adjust to cover the tax burden.
The association maintains that repossessed asset sales are closely tied to credit facilities and should be exempt under the VAT Act, arguing that taxing them would increase lending costs and would automatically affect access to credit for ordinary borrowers.