The Kenya Bankers Association (KBA) has opposed a proposal by the Kenya Revenue Authority (KRA) to impose VAT on the sale of repossessed goods, warning that the move could raise the cost of loans for Kenyans.

In submissions before a tax appeals tribunal, the lenders argued that repossessed assets are sold strictly to recover unpaid loans and should not be treated as taxable commercial transactions.

KBA is now pushing for amendments to the 2026 Finance Bill to exempt such sales from VAT, saying the tax would distort the credit market and increase borrowing costs.

KRA, however, maintains that banks effectively assume the borrower’s tax obligations when disposing of collateral.

The tribunal has allowed KRA to continue applying 16 per cent VAT for now, a move banks say will force them to pass additional costs to customers.