The Finance Act 2025 changed less for Kenyan life sciences investors than the pre-enactment headlines suggested, and what it did change is easy to miss if you are only watching for the change everyone was talking about. Separating what the Finance Bill 2025 proposed from what the enacted Finance Act 2025 actually contains matters here specifically, because the two are not the same thing.
What Actually Changed: VAT on Health-Access Technology, Not Medicines Broadly
During the Finance Bill’s public debate, proposals to widen VAT on healthcare-related goods drew significant attention and criticism, including concern that essential medicines themselves would lose their VAT exemption. What the enacted Finance Act 2025 actually did was narrower and more specific: it deleted the VAT exemption for discs and smartcards falling under tariff heading 85.23 that are used to access healthcare services, moving that specific category to the standard 16% VAT rate. This is a genuine change, and one that touches health-access technology and patient-facing digital infrastructure, but it is a materially narrower change than a general removal of VAT exemption on medicines or pharmaceutical products, which is not what the final Act contains. An investor or life sciences company that assumed the broader medicines-VAT proposal from the Bill stage carried through into law should revisit that assumption specifically.
The Tax-Loss Carryforward Cap: Why This Hits Life Sciences Harder Than Most Sectors
The change most likely to actually matter for a life sciences investor is not healthcare-specific at all. The Act restricts tax loss carryforward to five years, where it was previously indefinite, and capital losses are no longer deductible against future capital gains. This is a general corporate tax change, but it lands unevenly across sectors, and life sciences is one of the sectors it lands hardest on. Drug development, clinical trials, and medical device manufacturing routinely involve years of losses before a product reaches market and starts generating revenue; a five-year cap on carrying those losses forward means a company with a longer pre-revenue runway than that risks losing the tax benefit of losses incurred early in its development timeline, simply because profitability arrived later than five years out. Investment modelling for a Kenyan life sciences venture with a multi-year development horizon needs to account for this cap directly rather than assuming historical indefinite carryforward treatment still applies.
SEZ Capital Gains Treatment Now Follows Licensing Status
The Act also restricted capital gains tax exemptions to licensed Special Economic Zone operators specifically, narrowing what had been broader treatment. This sits directly alongside the separate changes the Business Laws (Amendment) Act 2024 made to SEZ incentives generally, including the 10-year cap on SEZ benefits, and the two should be read together by anyone structuring a pharmaceutical manufacturing investment through an SEZ: the licensing status that determines CGT treatment under the Finance Act 2025 is the same licence that now carries a defined 10-year benefit window under the 2024 amendment.
What Didn’t Change: No New Pharmaceutical-Specific Incentives
Equally worth noting for investors is what the Act did not do. It did not introduce any new pharmaceutical-specific tax incentives, such as targeted credits for local drug manufacturing of the kind some other emerging markets have adopted to encourage domestic production. Kenya’s approach to encouraging pharmaceutical manufacturing continues to run through the SEZ and Export Processing Zone incentive regimes rather than a sector-specific tax credit mechanism, and an investor comparing Kenya against jurisdictions that do offer manufacturing-specific credits should factor that structural difference into the comparison rather than expecting Kenya’s general zone incentives to function the same way.
Separating Bill-Stage Noise from Enacted Law
The gap between what a Finance Bill proposes and what the enacted Finance Act actually contains is a recurring pattern in Kenya’s annual finance legislation, not unique to this year, and it is a genuinely useful habit for a life sciences investor to build into how they track tax developments. Public debate, media coverage, and industry pushback happen at the Bill stage, often around the most dramatic version of a proposal, and the version that survives committee review and presidential assent can look materially different by the time it is actually law. An investor relying on Bill-stage commentary for an investment decision, rather than checking the text of the Act as enacted, risks planning around a provision that was never actually implemented in the form first reported, or missing a narrower version of it that was.
How We Can Help
Clay & Associates Advocates advises life sciences investors on structuring investments in light of the Finance Act 2025’s tax loss, VAT, and SEZ capital gains provisions. Our guide to the Business Laws (Amendment) Act 2024’s changes to Special Economic Zones is a useful companion for the SEZ licensing side of this analysis. Contact our Life Sciences & Healthcare practice to model your investment against the current tax framework.
Sources: Finance Act, 2025; Business Laws (Amendment) Act, 2024.
Frequently asked questions
Did the Finance Act 2025 remove the VAT exemption on medicines?
No. The enacted Act deleted the VAT exemption specifically for discs and smartcards under tariff heading 85.23 used to access healthcare services, not medicines or pharmaceutical products generally. Broader medicines-VAT proposals discussed at the Finance Bill stage are not what the final Act contains.
How does the five-year loss carryforward cap affect a pre-revenue life sciences company?
Losses incurred more than five years before a company becomes profitable can no longer be carried forward to offset that later profit. Given how long drug development and clinical trial programmes typically take to reach revenue, this is a materially different tax position than the previous indefinite carryforward rule.
Does the SEZ capital gains change apply to any SEZ investment?
It applies to licensed SEZ operators specifically. This restriction should be read alongside the separate 10-year cap the Business Laws (Amendment) Act 2024 placed on SEZ incentive duration, since both turn on the same underlying licence.
Are there any new tax credits specifically for pharmaceutical manufacturers under the Act?
No. The Finance Act 2025 did not introduce pharmaceutical-specific tax incentives. Kenya’s incentive structure for manufacturing investment continues to run through the general SEZ and EPZ regimes rather than a sector-specific credit.
