There are concerns that the tax increases in Kenya is hampering the growth of the country’s construction industry. This is coming as the price of a bag of cement rose from Ksh750 in December 2023 to about Ksh830 in December this year, with projections that limestone and other raw materials could fall in production.
A 5% tax on coal will increase the cost of cement production, as coal is the main energy in clinker production, according to a report by the Association of Kenya (AAK).
A 35% excise duty on tiles and sanitary fittings, as well as an import duty on steel, aimed at supporting local businesses, could limit options and lead to capacity constraints.
Developers will not only face higher costs of building homes but will also delay construction until housing prices fall, leading to a housing shortage.
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“The construction industry in Kenya has experienced a marginal increase in material costs over the past year owing to various factors such as fiscal policies, political instability, and fluctuation of the dollar exchange rate among others. These factors have directly impacted the cost of key construction inputs such as fuel, cement, and steel,” the AAK said in the report.
The architects’ report also touches on the damage that the government’s affordable housing project will suffer if the increase in material prices is not addressed. In Kenya, the increase in the prices of household goods will also affect the house taxes deducted from salaries. If the subsidy is implemented, the burden on taxpayers will be even heavier.
Increasing taxes on cement, steel and finished products are making it harder to reach affordable housing prices. The report said that the increased prices for producers will reduce interest rates on PPPs unless they are paid for through tax refunds or subsidies.
Report states that housing is likely to become more expensive and fail to meet affordability targets. Small developers may also have difficulty completing projects, increasing competition in the property market. When this happens, developers may use existing housing (250,000 units per year) to make higher profits.
