Digital Inclusion Under Threat: Communications Authority Warns Against New Smartphone Tax

Kenya’s push for a fully digitized economy faces a major crossroads as the Communications Authority (CA) issued a stark warning to Parliament regarding the proposed Finance Bill 2026. The regulator cautioned that the introduction of a 25% excise duty on mobile phones could trigger a massive reversal in digital adoption, effectively pricing millions of Kenyans out of essential digital services.

In a high-stakes session with the Departmental Committee on Finance and National Planning, the Authority argued that while it supports the government’s mandate to mobilize revenue, the current tax proposals are counter-productive. By shifting the Value Added Tax (VAT) status of mobile devices from zero-rated to exempt, the government risks creating a tax trap. Under an exempt system, suppliers are barred from recovering input tax, a cost that manufacturers and retailers will inevitably pass on to the consumer in the form of higher retail prices.

“This cost will ultimately remain embedded in final retail prices, offering consumers only marginal relief,” the Authority submitted to the committee. The regulator urged lawmakers to maintain the zero-rating for all mobile and wireless devices, emphasizing that such incentives are the bedrock of Kenya’s vibrant digital ecosystem.

The economic implications are significant. Analysts project that when the new 25% excise duty is added to existing levies—including the 16% VAT, import declaration fees, and railway development levies—the effective tax burden on a smartphone could exceed 45%. For the average Kenyan, who relies on mobile devices for banking, e-learning, and government services, this represents an insurmountable barrier to entry.

Industry experts also warn of a “grey market” surge. High prices in formal retail channels are expected to drive consumers toward cheaper, unregulated imports, which would ultimately undermine the government’s revenue collection goals. Furthermore, the proposed changes threaten to cripple the local assembly industry, which has been nurtured through years of tax incentives to create jobs and position Kenya as an electronics hub.