05/05/2026
THE FINANCE BILL, 2026
The Finance Bill, 2026 proposes to amend the Income Tax Act (Cap. 470), the Value Added Tax Act (Cap. 476), the Excise Duty Act (Cap. 472), the Tax Procedures Act (Cap. 469B), the Miscellaneous Fees and Levies Act (Cap. 469C) and the Stamp Duty Act (Cap. 480).
📊Highlights of the Proposed Amendments:
▶️The Tax Procedures Act:
✳️ Propose that starting January 2027, the deadline for filing returns shifts from 30th June to 30th April for individuals and companies following the end of the person's year of income (Jan-Dec of the previous year). It also proposal that Nil Returns be submitted within one month of the end of the income year (by 31st January).The proposal, backed by the National Treasury, is aimed at tightening compliance timelines and improving revenue collection efficiency by giving the Kenya Revenue Authority more time to process returns and enforce tax obligations.
✳️ Propose to amend the Tax Procedures Act be deleting paragraph (e) of Sec42(14). Section 42(14)(e) of Kenya's Tax Procedures Act (TPA) is a provision that expands KRA’s power to collect taxes. The section deals with the Commissioner's power to collect tax from an individual or a company owing money to a taxpayer (Agency Notices). It turns individuals or companies into a collection agent for the KRA. Under this section, the KRA may issue a notice to any person who holds or owes money to a taxpayer such as banks, employers, customers, debtors requiring them to pay that money directly to KRA to satisfy the taxpayer's outstanding tax liability. Paragraph e lists circumstances under which an agency notice is invalid or cannot be issued. It prevents KRA from issuing an agency notice where a taxpayer has formally appealed an assessment to the Tax Appeals Tribunal or Court. If deleted, KRA could issue agency notices even while an appeal is pending, potentially freezing bank accounts or intercepting payments during dispute resolution.
✳️ Virtual asset service providers will be required to submit detailed annual reports on user transactions, with the government also planning international agreements for automatic sharing of crypto-related tax information.
✳️The bill broadens the tax base on betting by treating total value of money or money’s worth paid, transferred, credited, or otherwise made available for betting or gambling purposes (all money deposited for gambling) as taxable, not just specific account credits or defined transactions under the Gambling Control Act, effectively increasing the scope of taxable betting funds.
▶️Penalties, Deductions & Fillings:
✳️Penalties for non-compliance with E-Systems: Failure to issue e-invoices or file electronically penalty = higher of 2x tax due, KES 100,000, or KES 10,000 (individuals).
✳️Waiver of Penalties: Commissioner may waive penalties/interest ≤ KES 2 million if caused by electronic system error.
✳️PIN Exemption: Non-residents exempt from PIN requirement when opening investment bank accounts.
✳️Proposed Value Added Tax Measures:
VAT is a tax on value addition and is accounted for using the input-output mechanism. In Kenya, there are currently two rates of VAT: 0% for zero-rated supplies and 16% of the taxable value of locally supplied and imported goods and services in any other case. VAT registration is required for persons making or expecting to make taxable supplies of over KES 5 million in a 12-month period. in a 12-month period. Registration must be done through the KRA iTax portal and requires compliance with electronic tax invoicing (eTIMS).
🔴New VAT Exemptions (First Schedule Part I)
✅ Health & Agriculture:
1. Human blood; animal blood prepared for therapeutic, prophylactic or diagnostic uses under tariff heading 3002.90.00.
2. Articles of tariff heading 8421.29.00 namely Dialyzers (medical equipment for kidney dialysis)
3. Inputs for animal feeds & pharmaceutical manufacturing (upon recommendation from CS Agriculture and Health).
4. Transportation of sugarcane from farms to milling factories to supports agro-processing value chain.
✅ Green Energy & Transport:
1. Solar and lithium-ion batteries
2. Electric bicycles and electric buses of tariff heading 87.02
3. Bioethanol v***r stoves of tariff heading 7321.12.00
4. Motorcycles, mopeds, and bicycles fitted with an electric motor for propulsion of tariff heading 8711.60.00
✅ Digital & Infrastructure:
1. Telephones for cellular/wireless networks
2. Goods/services for PPP infrastructure projects (upon approval)
✅ Other:
1. Scrap metal exempt at all stages after importation
2. Transportation of sugarcane to mills
3. Worn clothing (6309) – exempt only after importation
Proposed VAT Exemptions Removal (First Schedule Part I)❌
The Finance Bill, 2026 proposes to delete paragraphs 49, 58, 62, 109, and 153 from Part I of the First Schedule to the VAT Act. This means the goods/services currently exempt under these paragraphs will become subject to the standard 16% VAT rate (unless otherwise zero-rated).
1. Paragraph 49: Medicaments Containing Adrenal Cortical Hormones
2. Paragraph 58: Medical Dressings and Bandages
3. Paragraph 62: Goods used directly and exclusively for the construction of tourism facilities such as hotels, restaurants, large recreational parks (over 50 acres), and conference centers. An approval from the relevant Cabinet Secretary is required.
4. Paragraph 62: Dental Cements and Bone Reconstruction Materials
5. Paragraph 109: Goods imported or purchased locally for the direct and exclusive use in the construction of houses under an affordable housing scheme approved by the Cabinet Secretary on their commendation of the Cabinet Secretary responsible for matters relating to housing
▶️Income Tax Act:
✳️The bill introduces a new Section 12H in the Income Tax Act a deemed profit approach where 5% of the customs value of imported worn clothing, worn footwear, and other worn articles (Mitumba) classified under tariff heading 6309 of the EAC Common External Tariff (CET) will be treated as taxable income, payable at the point of importation. Worn clothing and other worn articles (New Section 12H).
✳️ Companies operating digital payments and financial technology payment systems, card networks, and digital platforms will now fall under expanded definitions of royalties, meaning more transactions and service fees will be taxed. Royalties now include payments for software licenses, digital platforms, payment networks, payment-card schemes, and transaction-based fees.
✳️Contribution to a gratuity in respect of employment or services rendered provided that the gratuity was for a contract of service for a continuous period of at least three years, the total contributions does not exceed 31% of the basic salary of the employee eligible for deductions under section 22A.
✳️ Imposition of non-resident rental income tax: Where the income of a nonresident person is accrued in or derived from the use or occupation of property situated in Kenya, a tax to be known as non-resident rental income tax shall be payable by that non-resident person at the rate specified in the Third Schedule which shall be a final tax on the income due by 20th of following month.
✳️Any income chargeable to tax and received by a person in the capacity of a trustee, executor or administrator, shall be deemed to be the income of that trustee, executor or administrator.
✳️ Dividend or interest which is included in the income of the trustee, executor or administrator under subsection (1) shall not be subject to further tax under this Act.
✳️Mandatory reporting: Virtual Asset Service Providers (VASPs) who exchange, transfer, or safeguard cryptocurrencies, must file annual information returns on reportable users.
• International cooperation: Kenya may enter agreements for automatic exchange of virtual asset transaction data with other countries.
▶️Withholding tax:
Section 35 of the Income Tax Act (Cap. 470) governs the withholding tax regime in Kenya, requiring certain payers to deduct tax at source from specified payments and remit it to the KRA. The Finance Bill, 2026 expands this regime by new categories of payments subject to withholding tax:
• Gamblers will now be subject to tougher taxation, with winnings now set to be subject to a 20% withholding tax.
✳️A 1.5% withholding tax is proposed on the gross payment amount of scrap metal sales.
• Companies operating digital payments and financial technology payment systems, card networks, and digital platforms will now fall under expanded definitions of royalties, meaning more transactions and service fees will be taxed.
✳️Virtual asset service providers will be required to submit detailed annual reports on user transactions, with the government also planning international agreements for automatic sharing of crypto-related tax information.
▶️Excise Duty:
✳️EAC Goods Not Treated as Imports: Goods originating from an EAC Partner States that meet EAC Rules of Origin will not be considered as imports for excise duty purposes.
✳️Antique, vintage or classic vehicle motor vehicle whose year of first registration is at least 30 years before the date of purchase and whose value is at least KES 10 million exclusive of depreciation will be subjected to 50% of the excisable value.
✳️ The bill proposes raising excise duty on smartphones and communication devices to 25%, with the duty now payable upon phone activation rather than at the point of import or purchase importation. This is expected to push up the cost of imported mobile phones for millions of Kenyans.
✳️Treasury has proposed a 10% tax adjustment on articles of plastic of tariff heading 3923.30.00 (Carboys, bottles, flasks and similar articles) and 3923.90.90 (Other plastic packing items).
✳️The proposal introduces a new 5% excise duty on coal or KES 27,000 per metric tonne, whichever is higher.
✳️Proposes that fruit juices (including grape must) and vegetable juice, unfermented and not containing added spirit be subjected to an excise duty of KES. 14.14 per litre.
✳️Proposes that fruit juices (including grape must) and vegetable juice, unfermented, containing added sugar or other sweetening matter and not containing added spirit be subjected to an excise duty of KES. 20 per litre.
✳️For ci**rs, cheroots, cigarillos, containing to***co or to***co, substitutes by deleting the corresponding rate of excise duty and substituting therefor the new rate of excise duty of KES. 18,000 per kg.
▶️Railway Development Levy & Export Levy: Exemptions
✳️Aircraft parts and specific aviation tariff headings exempted
✳️Imported cellular telephones added to exempt list.
▶️Stamp Duty (Cap. 480):
✳️Exemption extended to transfers of beneficial interest in property to Real Estate Investment Trusts (REITs).
▶️Miscellaneous Fees and Levies:
✳️Clause 57 of the Finance Bill, 2026 proposes amendments to Section 7 of the Miscellaneous Fees and Levies Act (Cap. 469C), which governs the allocation and distribution of Import Declaration Fee (IDF) revenue. Current Allocation Framework (KRA-20%, Revenue Enforcement Initiatives-10%, Other Statutory Allocations-70%). The new proposal seeks to reduce KRA allocation to 10%, remove allocation to revenue enforcement initiatives and increase other statutory allocations to 90%. This is likely to affect KRA's customs automation and capacity building, enforcement and trade compliance initiatives.
✳️ Amendment to Section 2: Definition of East African Community Partner States (Clause 56). This future-proofs the law to automatically accommodate new EAC member states without requiring further legislative amendments allowing goods originating from newly admitted EAC partners to automatically qualify for preferential treatment.
