The Finance Act, 2026 (“the Act”) is relatively lean compared to recent Finance Acts, with only a few substantive amendments. Unlike previous years, it does not introduce major tax reforms, giving taxpayers greater certainty and stability.
Unless a different date is stated against an item below, provisions of the Act take effect on 1 July 2026, in line with the start of the Government’s fiscal year. A small number of provisions are deferred to 1 January 2027 (mainly filing-timeline and non-resident repatriation changes), and the new export-declaration regime under the Miscellaneous Fees and Levies Act takes effect on 1 September 2026.
The analysis below is organised into three parts:
- Income tax and tax procedures changes
- VAT and excise changes
- Key proposals in the Finance Bill, 2026 that were not enacted
Part A – Income Tax and Tax Procedures Changes
- Capital Gains Tax (CGT) on indirect transfers of shares by non-residents
Expands CGT to cover gains made by non-residents from the transfer of shares that derive their value from Kenya, and captures transactions that change group membership of a Kenyan company or ownership of Kenyan property/interests.
Implication: Materially widens Kenya’s CGT net for offshore restructurings, M&A, and holding-company transactions with Kenyan underlying assets. Non-resident investors and multinational groups will need to assess CGT exposure before implementing cross-border share transfers.
Effective date: 1 July 2026.
- General anti-avoidance rule and power to assess avoidance schemes
Introduces a general anti-avoidance rule in the Tax Procedures Act allowing the Commissioner to disregard tax-avoidance arrangements and reassess liability, with written reasons required and an option for taxpayers to seek private rulings on complex transactions.
Implication: Businesses should ensure transactions have genuine commercial substance, as KRA now has express statutory power to unwind tax-driven arrangements. Private rulings offer a route to advance certainty.
Effective date: 1 July 2026.
- Commissioner’s power to originate an assessment
Empowers the Commissioner to raise assessments based on information already available (e.g., from third parties), with a requirement to give taxpayers at least 30 days’ notice to respond before an assessment issues, and preserving the right to object.
Implication: Expands KRA’s data-driven assessment powers. Taxpayers should keep accurate, well-supported filings and be ready to respond quickly to information requests.
Effective date: 1 July 2026.
- Taxation of the life/statutory insurance fund
Replaces “life insurance fund” with “statutory fund” under Section 19 of the Income Tax Act, broadening the wording to align with the Insurance Act’s definition covering all classes of long-term insurance business.
Implication: Provides clarity on the tax treatment of long-term insurance business following uncertainty created by the Finance Act, 2025. The substantive tax treatment is largely unchanged.
Effective date: 1 July 2026.
- Pension and other benefits paid on death
Extends the existing tax exemption on pension income to cover benefits paid to beneficiaries or dependents on the death of a member of a registered pension fund, provident fund, individual retirement fund, public pension scheme, or the NSSF.
Implication: Death-related benefits received by dependents become fully tax-exempt, improving the financial protection these schemes offer.
Effective date: 1 January 2027
- Extension of tax amnesty
Extends the tax amnesty period to cover obligations up to December 2025, giving taxpayers more time to regularise historical tax positions.
Implication: Taxpayers with unresolved historical exposures get a further window to apply for amnesty without penalties or interest.
Effective date: 1 July 2026.
- Pre-populated (“e-filing”) tax returns
Introduces a framework for pre-populated tax returns — the Commissioner must issue and notify taxpayers of these by end of January each year, and taxpayers have two months to review, amend, or confirm before the return is relied on for filing.
Implication: May simplify compliance but shifts the burden onto taxpayers to promptly reconcile and correct pre-filled data before the filing deadline.
Effective date: 1 July 2026.
- Revised eTIMS penalty framework
Sets penalties for eTIMS non-compliance at the higher of 5% of the tax due, KShs 100,000 for companies, or KShs 10,000 for individuals.
Implication: Raises the cost of eTIMS non-compliance, increasing the incentive for businesses to maintain proper electronic invoicing.
Effective date: 1 July 2026.
- Commissioner’s power to waive eTIMS-related penalties
Allows the Commissioner to waive penalties and interest of up to KShs 2 million arising from electronic tax system errors, without Cabinet Secretary approval.
Implication: Speeds up resolution of lower-value eTIMS penalty disputes; waivers above KShs 2 million still require the fuller approval process.
Effective date: 1 July 2026.
- Exemption for qualifying employer gratuity contributions
Exempts employer gratuity contributions from tax where they relate to a contract of service of at least three years (including renewals/extensions) and do not exceed 31% of the employee’s emoluments over the contract period.
Implication: Gives employers a clearer basis to structure tax-efficient gratuity schemes for longer-term contract staff.
Effective date: 1 July 2026.
- VAT treatment of employee-related costs for outsourcing/labour-placement providers
Employee-related costs incurred by labour outsourcing, staffing, or placement providers are treated as disbursements made on behalf of the client and excluded from the taxable value for VAT — VAT applies only to the service fee.
Implication: Removes a long-standing point of dispute on outsourcing VAT; the reform should prevent VAT being charged on the full payroll cost passed through by outsourcing firms.
Effective date: 1 July 2026.
- Expanded definition of “royalty”
Extends the definition of a royalty to include payments for the use of, or right to use, proprietary digital payment card networks or platforms, however the payment is described.
Implication: Increases withholding tax exposure on payments to card networks and digital payment platforms; affected businesses should review contracts and WHT positions.
Effective date: 1 July 2026.
- Expanded definition of “management or professional fee”
Extends the definition to include interchange fees and merchant service fees from card transactions, bringing them within the WHT regime.
Implication: Card-related fees now attract WHT, potentially raising the cost of card payment processing and creating new compliance obligations for payers.
Effective date: 1 July 2026.
- Non-resident rental income — new final tax regime
Introduces a simplified registration, filing, and final-tax framework for non-residents earning Kenyan rental income, with tax due by the 20th of the following month unless already subject to withholding tax under section 35(1)(c).
Implication: Non-resident landlords face new monthly filing obligations, alongside a simplified compliance route compared to the standard self-assessment regime.
Effective date: 1 July 2026.
- Deductibility of bad debts for banks, microfinance and money-lending institutions
Clarifies that deductible bad debts for licensed money lenders, banks, and financial institutions include principal, interest, and other related amounts, provided the debt is written off per the Commissioner’s guidelines.
Implication: Removes ambiguity that previously limited banking-sector bad-debt deductions largely to interest; lenders must still evidence irrecoverability and follow the Commissioner’s write-off guidelines.
Effective date: 1 July 2026.
- Carry-forward of tax losses for large investments
Allows taxpayers who invested at least KES 10 billion in Kenya before 1 July 2025 to carry forward pre-2025 tax losses until fully utilised, disapplying the ordinary carry-forward time limit.
Implication: Protects the value of accumulated losses for qualifying capital-intensive investors; taxpayers must demonstrate they meet the KES 10 billion threshold and eligibility criteria.
Effective date: 1 July 2026.
- WHT on scrap metal and winnings; non-resident ship income
Introduces WHT on scrap-metal sale proceeds and on winnings, and removes WHT on income of certain non-resident ship owners/charterers, replacing it with a direct tax-payment obligation.
Implication: Buyers of scrap metal and betting/gaming operators face new withholding obligations; non-resident shipping operators move to self-remittance rather than WHT.
Effective date: 1 July 2026.
- Shortened annual self-assessment filing deadlines
Individuals must file by the last day of the fourth month after the year of income ends; non-individuals by the last day of the sixth month after their accounting period ends. A proposed one-month nil-return deadline was dropped.
Implication: Individual taxpayers effectively face an end-of-April filing deadline (down from the prior June deadline), and corporate taxpayers get a shorter runway after year-end — earlier preparation of accounts and tax computations will be needed.
Effective date: 1 January 2027.
- Taxation of trust and estate income
Clarifies that income received by a trustee, executor, or administrator is taxed in their hands; beneficiaries are not taxed again on income already taxed, and qualifying dividends/interest are not taxed further.
Implication: Reduces the risk of double taxation in trust and estate structures, giving trustees and beneficiaries clearer positions.
Effective date: 1 July 2026.
- Removal of preferential EAC withholding tax rate on dividends
Removes the preferential 5% WHT rate on dividends paid to citizens of East African Community Partner States; such dividends now attract the standard 15% non-resident rate.
Implication: Raises the tax cost of dividend flows to EAC citizens, aligning Kenya with Uganda and Tanzania, which do not offer this preference; may affect the relative attractiveness of EAC cross-border shareholding structures.
Effective date: 1 July 2026.
- Revised tax rates for non-resident contractors in the extractive sector
Cuts the income tax rate for non-resident extractive-sector contractors from 37.5% to 30%, and introduces a 15% tax on repatriated income for non-resident licensees and contractors.
Implication: Lowers headline corporate tax for non-resident extractive contractors while adding a new layer of tax when profits are repatriated out of Kenya.
Effective date: 1 January 2027.
- Employment income of non-resident aviation staff of national carriers
Exempts from Kenyan income tax the employment income of non-resident individuals engaged by Kenya’s designated national carrier and Kenya Airways, to the extent it relates to duties performed outside Kenya on international operations.
Implication: Reduces the Kenyan tax burden on qualifying non-resident aviation staff, intended to help national carriers attract international talent.
Effective date: 1 July 2026.
- Filing obligations for virtual asset service providers (VASPs)
Requires VASPs to file annual information returns on reportable transactions, with data-protection safeguards requiring information collected to be necessary, proportionate, and Data Protection Act-compliant.
Implication: Brings VASPs formally within Kenya’s tax-reporting net, increasing their compliance obligations.
Effective date: 1 July 2026.
- PIN exemption for non-resident investors opening investment-bank accounts
Exempts non-residents from the requirement to obtain a KRA PIN when opening an account with an investment bank.
Implication: Removes an administrative barrier for foreign investors accessing Kenya’s capital markets.
Effective date: 1 July 2026.
Part B – VAT and Excise Duty Changes
- VAT exemption on large investments (≥ KShs 3 billion)
Exempts from VAT the importation or local purchase of plant, machinery, equipment, and spare parts for approved projects with total investment of at least KShs 3 billion.
Implication: Reduces the upfront VAT cost for qualifying large-scale investment projects, likely benefiting imported equipment more than locally sourced goods (due to embedded, non-recoverable VAT in local pricing). Effective date: 1 July 2026.
VAT exemption for National Infrastructure Fund projects
Exempts from VAT the supply of goods for direct, exclusive use in infrastructure projects funded by the National Infrastructure Fund, subject to Treasury Cabinet Secretary approval.
Implication: Lowers the VAT cost of qualifying public infrastructure projects.
Effective date: 1 July 2026.
- VAT exemption for PPP infrastructure projects
Exempts from VAT the supply of goods and services for direct, exclusive use in approved PPP infrastructure projects.
Implication: Supports private-sector participation in public infrastructure by reducing VAT costs, though input VAT on procurements outside the exemption’s scope may remain irrecoverable.
Effective date: 1 July 2026.
- Zero-rating limited to specific tariff classifications
Restricts the zero-rating of electric bicycles and solar/lithium-ion batteries to products under tariff headings 8712.00.00 and 8507.60.00 respectively.
Implication: Narrows the scope of the zero-rating to defined tariff codes, reducing ambiguity but also potentially excluding related products previously treated as zero-rated.
Effective date: 1 July 2026.
- Excise duty on antique and classic vehicles
Introduces a 50% excise duty on antique, vintage, and classic vehicles at least 30 years old and valued at KShs 10 million or more (before depreciation).
Implication: Significantly raises the cost of acquiring qualifying collector vehicles, consistent with a policy of taxing luxury assets more heavily.
Effective date: 1 July 2026.
- Two-tier excise duty on juices
Unsweetened fruit/vegetable juices remain at KShs 14.14 per litre; juices with added sugar or sweeteners now attract a higher rate of KShs 20 per litre.
Implication: Raises retail prices for sweetened juices and creates a financial incentive for manufacturers to reformulate with less sugar, aligning the tax with public-health objectives.
Effective date: 1 July 2026.
Part C: Key Finance Bill, 2026 Proposals Not Enacted
These were dropped following public participation and parliamentary review, and do not form part of the Act.
- Tax relief for Central Bank of Kenya (CBK) employees — a proposed KES 360,000/year housing-loan interest deduction for CBK staff was not adopted, preserving equal treatment across employees.
- Use of agency notices during ongoing appeals — a proposal to let the Commissioner issue agency notices after a taxpayer loses at the Tax Appeals Tribunal or High Court (even pending a further appeal) was not adopted, preserving existing taxpayer protections.
- Removal of offset of overpaid tax against import VAT — the proposal to stop taxpayers using overpaid tax credits against VAT on imports was dropped; the existing offset mechanism continues.
- Activation-based excise on mobile phones — the proposal to move the excise duty point on mobile phones from importation/manufacture to activation was not adopted; excise remains payable at import/manufacture.
- Increase in excise duty on imported cellular phones (10% → 25%) — not adopted; the rate remains 10%.
- Extension of excise duty on sugar confectionery to local production — the proposal to remove “imported” and tax local sugar confectionery too was not adopted; excise continues to apply only to imported products.
This analysis is provided for general information purposes only and does not constitute tax or legal advice. Should you need any further analysis or advice, please contact CMC Advocates
