The Kenya Bankers Association has warned that Kenyans could face higher borrowing costs if the Kenya Revenue Authority is allowed to impose Value Added Tax (VAT) on the sale of repossessed assets.
In submissions before the Tax Appeals Tribunal on Sunday, May 24, the bankers’ lobby argued that the proposal contained in the Finance Bill 2026 would increase the cost of credit and negatively affect borrowers across the country.
According to KBA, it plans to push for amendments to the proposed law to exempt the sale of repossessed collateral from VAT charges.
“We are proposing that a specific provision be introduced as part of the First Schedule of the VAT Act,” a KBA official stated.
The association wants a new clause added to exempt the sale, disposal, or realization of collateral, repossessed assets, and secured property by financial institutions when such sales arise from the enforcement of security linked to loans, credit facilities, or other exempt financial services.
KBA argues that repossession and sale of collateral is not a profit-making venture but merely a recovery mechanism used by banks to recover unpaid loans, and therefore should not be classified as a taxable supply.
The bankers are seeking to stop KRA from demanding VAT on the disposal of repossessed assets used to recover bad debts.
However, KRA has maintained that during auction sales of seized property, the creditor effectively steps into the borrower’s position and is therefore liable for applicable taxes and levies.
The Tax Appeals Tribunal has already allowed KRA to continue imposing a 16 per cent VAT on such goods, a move the banking industry says could have far-reaching consequences for both lenders and customers.
KBA warned that continued taxation of repossessed assets could distort the credit market and force financial institutions to pass the additional costs to borrowers through higher lending rates.
“If VAT on these assets continues, then banks will be forced to go back into their capital. It is not practical,” the KBA representative said.
The association insists that repossessed asset sales are directly tied to credit facilities and should remain exempt under the VAT Act, warning that the tax burden could reduce access to affordable credit for ordinary Kenyans.