Mental health, alcohol and substance abuse tax relief: How it works

An institution is proposing a mental health, alcohol and substance abuse social impact tax incentive.

In the proposal sent to National Treasury Cabinet Secretary John Mbadi, Thalia Psychotherapy, a mental health institution is seeking the introduction of a targeted, performance-based tax incentive called the Mental Health, Alcohol and Substance Abuse Social Impact Tax Credit (MHSITC).

The tax incentive or relief, Thalia Psychotherapy says, will catalyse private sector investment into Kenya’s mental health system, with explicit focus on alcohol and drug abuse prevention, treatment and workforce development.

The country is struggling with mental health challenges, with five to 10 million people, which translates to 10 to 20 per cent of the population, affected by conditions like depression, anxiety and substance abuse, accounting for 13 per cent of the total disease burden.

This crisis causes substantial socio-economic strain, resulting in over Sh62 billion lost productivity every year.

Mental health, alcohol and substance abuse are now a critical public health, productivity and fiscal risk.

Keep Reading

The burden is felt in workplaces in terms of absenteeism and reduced output, households in lost income and caregiving costs, public safety (crime and road traffic incidents) and the health system in co-morbidities and chronic diseases.

At the same time, Kenya faces a persistent shortage of trained mental health professionals across counties, limiting access to timely, quality care.

“While the Bottom-Up Economic Transformation Agenda (BETA), Universal Health Coverage (UHC), and the Social Health Authority (SHA) provide a strong policy foundation, the institution financing for prevention, early intervention, substance-use treatment and rapid workforce expansion remains structurally under-incentivised, particularly for the private sector,” said Dennis Mwangi, Thalia Psychotherapy’s managing partner.

Under MHSITC, it proposes a non-refundable, outcome-based corporate income tax credit awarded to companies that finance verified mental health, alcohol and drug abuse outcomes, rather than inputs or expenditures.

“A legal structure to be introduced via amendment to the Income Tax Act, supported by Treasury regulations and administered by Kenya Revenue Authority(KRA) in partnership with the Ministry of Health and SHA for technical verification, earned only after independently verified outcomes are delivered,” Mwangi says in the proposal.

On eligible outcomes, the organisation proposes prevention, screening and early intervention: verified mental health and substance use screenings, brief interventions and structured workplace and community prevention programmes.

It also proposes treatment and recovery, completion of evidence-based therapy or rehabilitation pathways, retention in care for substance-use disorders, post-treatment follow-up and relapse-prevention support.

Still under eligible outcomes, Mwangi proposes workforce development: training, licensing, hiring and deployment of mental health professionals such as psychologists, psychiatrists, psychiatric nurses, addiction counsellors and rehabilitation specialists, and community health promoters trained in mental health and substance-use protocols.

The draft proposes equity and priority groups: enhanced credit weighting for underserved counties and priority populations including youth, maternal mental health, first responders, security personnel and high-risk occupational groups.

The institution also suggests credit design and fiscal safeguards where credit value is set annually by the National Treasury through regulations, a credit rate of 30 to 50 per cent of the verified outcome value, and annual cap per taxpayer of 10 to 20 per cent of corporate income tax payable.

Also proposed is a national fiscal envelope approved annually through the Budget to ensure predictability and control, carry-forward for up to five years to support multi-year investments, optional one-time transferability at a regulated discount to unlock liquidity and attract additional capital and anti-abuse: digital evidence requirements, independent verification and KRA audit powers; clawback and penalties for misreporting.

Fourthly, the institution says the proposal has strategic benefits to the government, which include direct support for UHC and SHA objectives by incentivising prevention, early detection and continuity of care.

The proposal says this will accelerate the training, hiring, and deployment of mental health and addiction professionals without creating permanent payroll obligations for government and reduce downstream fiscal pressures linked to healthcare costs, workplace productivity loss, crime, road safety and social protection.

And finally, it promises to mobilise private capital toward national priorities in a transparent, measurable way, shifting Corporate Social Responsibility (CSR) from ad-hoc spend to verified outcomes.

On implementation pathway, Thalia Psychotherapy proposes inclusion of the MHSITC framework in the Finance Bill 2026, development of implementing regulations in consultation with KRA and the Ministry of Health or SHA, including a clear unit schedule and reporting requirements.

A pilot for 12 months with large employers, insurers and county partnerships in high burden regions and subsequent evaluation before a national scale-up is another proposal on implementation.

“We believe MHSITC offers Kenya an opportunity to lead globally, mobilizing private investment, expanding the mental health and addiction workforce, and reducing long-term public expenditure, while maintaining fiscal discipline,” said Mwangi.

The United Kingdom is one of the countries that have already implemented the equivalent of social impact tax credit.

The government utilizes the Community Investment Tax Relief (CITR) scheme, which offers a 25 per cent tax credit on investments in accredited social lenders, some of which can be directed toward social enterprises, including mental health services.

In the Organisation for Economic Co-operation and Development (OECD) countries, including Japan, France, Germany and USA, governments are focusing on employer-driven investment through tax incentives for implementing workplace mental health promotion plans, especially for Small and Medium Enterprises (SMEs).

Latin America countries like Chile and Colombia, while not purely tax-credit-based, are using blended finance and Public-Private Partnerships (PPPs), with the support of the World Bank, to integrate mental health services, often providing tax incentives or financial support for private entities involved in digital innovation and workforce mental health.

There is a push in the region, across Ghana, Kenya, Rwanda, Uganda and others, to align mental health investments with Environmental, Social, and Governance (ESG) mandates for corporations, which often includes leveraging tax incentives for CSR initiatives that target mental well-being.