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A practical analysis of what changed, what was retained and the implications for businesses operating in Kenya.
A chapter by chapter analysis of the Finance Act 2026 and its implications for businesses in Kenya.
The Finance Act, 2026 marks another significant milestone in Kenya's evolving tax landscape. Beyond introducing new tax measures, the Act reshapes compliance obligations, expands reporting requirements, refines tax administration, and introduces targeted incentives that will influence how businesses operate in the years ahead.
For business owners, finance teams, tax practitioners, investors, and policymakers, understanding these changes is no longer optional — it is essential. Overlooking one amendment can mean increased exposure, missed relief opportunities or costly compliance penalties.
In this inaugural edition, our tax experts go beyond a legislative summary. We explain what each amendment means, why it matters and the practical implications for your business and day-to-day tax obligations.
At RWK Africa, we believe tax knowledge should empower businesses, not overwhelm them. This magazine translates complex legislation into clear, actionable insight.
Assented on 23 June 2026, the Finance Act, 2026 targets base broadening, digital economy taxation, and tighter tax administration to support the government's KES 3.533 trillion revenue target for FY 2026/2027.
Deadline moved forward by two months to April 30th (four months post-year-end). Corporate deadlines remain unchanged.
Withholding tax now applies to interchange and merchant service fees, expanding the definition of management fees.
Mandatory export declarations from the origin country required for all imports starting 1 September 2026.
Reintroduced for penalties and interest on liabilities accrued up to 31 December 2025, if principal tax is paid by 31 December 2026.
Businesses — especially in fintech, banking, and outsourcing — must immediately restructure contracts to accommodate new VAT and withholding tax rules. Individuals must prepare for earlier tax filing cycles in April.
How the new rules affect companies, individuals, financial institutions and cross-border arrangements.
Read this chapterThe Act redefines key terms, expands the digital economy and virtual asset tax base, tightens withholding tax and anti-avoidance rules, and resets several filing deadlines.
| Issue | Change under the Finance Act, 2026 | Summary Impact |
|---|---|---|
| Definition of "Immovable Property" | Replaces the word "and" with "or", making land-related interests and mining or petroleum interest alternative components of the definition rather than cumulative requirements. | Primarily a drafting clarification that simplifies interpretation and is expected to reduce disputes on Capital Gains Tax and other property-related rules. |
| Definition of "Management or Professional Fee" | Expanded to include interchange fees and merchant service fees arising from payment card transactions. | Brings these fees within the scope of withholding tax, reversing prior court decisions. Financial institutions, merchants and payment service providers face higher compliance and withholding costs; the lack of a statutory definition for "merchant service fees" may create interpretational challenges. |
| Definition of "Royalty" | Broadened to include payments for the use of proprietary digital payment card networks or platforms, including access, participation and usage rights. Unlike the Bill, the Act does not extend this to software distribution payments. | Expands the withholding tax base for digital payment networks and card-related transactions, increasing exposure for banks and payment service providers. Software distributors and resellers get certainty from the narrower scope. |
| Definition of "Withdrawals" | Revised to cover any cash, cash equivalent, or monetary value paid to a player by a person licensed under the Gambling Control Act, 2025. | Aligns the ITA with the new gambling regulatory framework and broadens the scope of taxable withdrawals; betting operators face additional compliance requirements. |
| Definition of "Winnings" | Reintroduces the definition of winnings but removes the Bill's proposal to exclude the original stake or wager from the taxable amount. | Restores withholding tax on winnings and creates uncertainty over whether tax applies to gross payouts or only net winnings. |
| Issue | Change under the Finance Act, 2026 | Summary Impact |
|---|---|---|
| Non-Resident Rental Income Tax (Section 6B) | A final tax regime is introduced for non-residents earning rental income from property in Kenya. Must register under a simplified system and file monthly returns by the 20th of the following month. | Simplifies taxation of non-resident landlords, but the applicable tax rate has not been expressly provided in the Third Schedule — watch for further guidance. |
| Tax on Income of Non-Resident Ship Owners (Section 9) | Tax must now be paid within five days after payment is received or before the vessel leaves the port of loading, whichever is first. | Strengthens collection by requiring direct payment before a ship exits Kenya; shipping businesses need efficient payment processes to avoid penalties. |
| Scrap Metal & Winnings as Kenyan-Source Income (Section 10) | Income from scrap metal sales and winnings is expressly classified as Kenyan-source income. | Provides a clearer legal basis for withholding tax, particularly for non-resident payments, in sectors with historic compliance challenges. |
| Taxation of Trust Income (Section 11) | Income received by trustees, executors or administrators continues to be taxed at that level; beneficiaries are not taxed again once tax is paid. | Minimizes double taxation risk and enhances certainty for trustees managing estates and trust structures. |
| Instalment Tax (Section 12) | Individuals whose only taxable income is employment income are excluded from instalment tax obligations. | Reduces unnecessary compliance for PAYE-only employees while maintaining obligations for taxpayers with additional income. |
| Deductibility of Bad Debts (Section 15) | Licensed lenders, banks and regulated financial institutions may now claim deductions for bad debts comprising principal, interest and related amounts, subject to Commissioner's guidelines. | Resolves long-standing uncertainty on deductibility of loan principal while safeguarding that only genuinely irrecoverable debts qualify. |
| Carry Forward of Tax Losses for Large Investments (Section 15) | Investors who had invested at least KES 10 billion before 1 July 2025 may continue utilizing pre-existing tax losses until fully exhausted. | Protects the value of accumulated tax losses for major capital investments, supporting investor confidence. |
| Interest Deductibility for Non-Deposit Taking Institutions (Section 16) | Clarifies that the relevant provisions apply to institutions engaged in lending, leasing, or both. | Removes ambiguity and ensures standalone lending or leasing businesses are treated consistently. |
| Issue | Change under the Finance Act, 2026 | Summary Impact |
|---|---|---|
| Country-by-Country Reporting (Sections 18D & 18F) | Technical amendments correct statutory cross-references and revise definitions relating to CbC reports, excluded MNE groups and ultimate parent entities. | No new reporting obligations, but improves clarity and aligns with the OECD BEPS Action 13 framework. |
| Insurance Companies (Section 19) | References to "life insurance fund" replaced with "statutory fund" to align with the Insurance Act. | Harmonizes tax and insurance legislation for long-term insurance business and actuarial surplus calculations. |
| Repeal of Section 23 (Anti-Avoidance Rule) | Repealed, with anti-avoidance provisions now incorporated into the Tax Procedures Act. | Legislative harmonization — KRA retains broad powers to challenge tax avoidance arrangements under the TPA. |
| Section 35 — National Carrier Payments | Keeps a narrow carve-out for a designated national carrier, so payments to non-residents for specified proprietary digital platforms and payment systems are not subject to withholding tax. | Protects the national carrier from extra tax on critical aviation payment infrastructure. |
| Section 35 — Scrap Metal, Winnings & Ship Income | Deletes the withholding rule for certain non-resident ship income; introduces withholding tax on scrap metal sales and winnings. | Collection becomes more targeted and easier to enforce in high-transaction-volume sectors. |
| Sections 52 & 52B — Filing Deadlines | Persons served with notice must file by the last day of the fourth month after year-end. Individuals must file self-assessment returns by the last day of the fourth month after year-end; other persons by the sixth month. Commencement: 1 January 2027. | Gives fixed deadlines requiring earlier preparation of returns and up-to-date records. |
| Section 18A — Anti-Tax Avoidance Rules | Introduces a broad anti-avoidance rule allowing the Commissioner to disregard tax-motivated arrangements, with written reasons required within 30 days and private rulings available for complex cases. | Strengthens enforcement against avoidance while adding fairness, transparency and certainty for taxpayers. |
| Issue | Change under the Finance Act, 2026 | Summary Impact |
|---|---|---|
| First Schedule — Death Benefits & REIT Transfers | Benefits paid on death are exempt from tax; capital gains on qualifying transfers of property to a registered REIT are also exempt. | Eases the burden on beneficiaries and supports REIT growth by making property transfers more tax-efficient. |
| Second Schedule — Investment Allowance | Confirms the 10% allowance on industrial building capital expenditure is claimed in equal annual instalments; adds a 100% first-year allowance for qualifying petroleum or gas storage facilities costing over KES 10 billion. | Removes timing uncertainty and gives a strong cash-flow incentive for large energy storage investments. |
| Third Schedule — Tax Rates | Keeps the 1.5% withholding rate on scrap metal sales and 20% on winnings; removes the preferential 5% dividend rate for EAC Partner State citizens, replacing it with the standard 15% non-resident rate. | Cross-border EAC investors face a higher dividend tax burden, which may reduce regional investment appeal. |
| Eighth Schedule — Capital Gains Tax | Broadens CGT to cover gains by non-residents on share disposals where shares derive value from Kenya, or where the transaction changes control of a Kenyan resident company or property interest. | Expands Kenya's taxing rights over indirect transfers, increasing exposure for non-residents in offshore restructurings. |
| Ninth Schedule — Extractive Industries | Lowers the non-resident contractor tax rate from 37.5% to 30% and sets a 15% repatriated-income tax for licensees and contractors (from 1 January 2027). | Makes Kenya more competitive for extractive projects while preserving tax on repatriated profits. |
| Section 5(1) & 5(4)(g) — National Carrier Staff & Gratuity | Exempts foreign employment income of non-resident national carrier staff for duties performed abroad; exempts gratuity contributions where the contract lasts at least 3 years and does not exceed 31% of emoluments. | Targeted relief for aviation talent and qualifying gratuity arrangements — employers must structure schemes carefully around the conditions. |
| Virtual Assets (Sections 3(1), 6C & 6D) | Defines "virtual asset" and "virtual asset service provider" by reference to the Virtual Asset Service Providers Act, 2025; VASPs must file annual information returns; Kenya may enter automatic information-exchange agreements. | Brings virtual asset activity into the tax reporting system, increasing transparency and enforcement risk for offshore structures. |
Understand the impact on digital finance, outsourced staff, exemptions and day-to-day VAT treatment.
Read this chapterThe Act narrows several exemptions, expands VAT into digital payment services, and introduces new relief for infrastructure and healthcare-related goods and services.
| Section / Item | Change under the Finance Act, 2026 | Summary Impact |
|---|---|---|
| Deletion of Certain Definitions (Section 2) | Deletes the definitions of assessment, information technology, and tax computerized system. | Aligns the VAT Act with the Tax Procedures Act and reduces duplication. |
| Labour Outsourcing Costs (Section 13(5A)&(5B)) | Employee-related costs in labour, outsourcing, or employee placement services are treated as disbursements made on behalf of the client. | VAT applies only to the supplier's fee or margin, resolving disputes over labour outsourcing arrangements. |
| Hire Purchase Finance Charges (Section 13(6)(a)) | The VAT exclusion for financial charges is limited to supplies by licensed hire purchase businesses under registered agreements. | Narrows the relief and excludes instalment/credit sales outside the regulated hire purchase framework. |
| Inputs for Supplies to KDF, DEFWES, NIS & NPS (Section 17) | Allows input VAT recovery on exempt supplies made to these entities. | Improves cash flow for suppliers and removes a key cost burden, subject to proper documentation. |
| Clawback on Exempt Reclassification (Section 17A) | New rule requiring reversal of input VAT where taxable supplies become exempt while still unsold. | Creates an immediate tax cost and cash flow pressure when reclassification occurs. |
| Bad Debt Refund Period (Section 31) | Minimum period for claiming VAT relief on bad debts restored from two years to three years. | Delays access to VAT refunds, increasing cash flow pressure for businesses with irrecoverable debts. |
| Invoice Rules (Section 42) | Keeps the rule that a tax invoice may only be issued for a taxable supply; drops the proposal to extend this to all persons. | VAT invoicing stays limited to taxable supplies and registered persons. |
| Tax Avoidance Schemes (Section 66) | Section 66 of the VAT Act is repealed. | Anti-avoidance enforcement now handled under the Tax Procedures Act, centralising the framework. |
| Section / Item | Change under the Finance Act, 2026 | Summary Impact |
|---|---|---|
| Dropped Proposals | Deletion of the denatured ethanol exemption, the worn-clothing exemption proposal, and the shift from zero-rating to exemption for motorcycles, electric bicycles, animal feed inputs, sugarcane transport, locally assembled phones, solar/lithium-ion batteries and electric buses were all not adopted. | Current VAT treatment for these items remains unchanged, avoiding a loss of input tax recovery for affected sectors. |
| Chapter 88 Goods & Direction-Finding Compasses (Paras 49 & 58) | Goods under Chapter 88 (excluding helicopters) and direction-finding compasses are removed from the exempt list. | Standard-rated unless another relief applies, increasing costs for aviation and related capital-intensive sectors. |
| Tourism Facilities & Affordable Housing (Paras 62 & 109) | Exemptions for goods used in constructing tourism facilities, recreational parks, convention/conference facilities, and affordable housing are deleted. | Developers lose upfront VAT relief, potentially raising project and development costs. |
| Dialyzers & Scrap Metal (Paras 158 & 159) | New VAT exemption introduced for dialyzers; scrap metal is made VAT-exempt. | Lowers dialysis equipment costs and supports formalisation of scrap metal recycling (though suppliers lose input VAT recovery). |
| PPP & National Infrastructure Fund Projects (Paras 162 & 163) | New exemptions for goods used directly and exclusively in approved PPP projects and National Infrastructure Fund-funded projects. | Reduces project costs and supports private-sector participation in infrastructure delivery, subject to approvals. |
| Pharmaceutical Inputs & BEV Stoves | Both moved from zero-rated to exempt status. | Manufacturers/suppliers lose input VAT recovery, potentially raising production and retail costs. |
| Aircraft Parts & Traveller's Baggage | Aircraft parts exemption broadened from "any other aircraft spare parts" to "aircraft parts"; traveller's baggage duty-free/VAT threshold raised from USD 300 to USD 2,000. | Widens relief for aircraft operators and eases the tax burden for returning travellers. |
| Digital Payment Services | Core money-transfer services remain exempt, but payment processing, settlement, merchant acquiring, gateway and aggregation services are carved out and taxed. | Brings fintech and payment intermediaries into the VAT net, likely increasing transaction costs. |
| Tour Operators & Tourism Construction | Only licensed tour operators qualify for exemption, with "in-house supplies" excluded; the tourism construction services exemption is removed. | Narrows relief and may increase VAT costs for tourism developers and operators using their own resources. |
| Capital Goods for Manufacturing & LPG Storage | New exemption for Cabinet Secretary-approved capital goods (investment of at least KES 2 billion); new exemption for LPG storage infrastructure (KES 5 billion threshold, Energy CS recommendation). | Targets large-scale manufacturing and energy investments with more stable, long-term relief. |
| Electric Bicycles & Solar/Lithium Batteries | Zero-rating narrowed to specific tariff headings (8712.00.00 for e-bikes; 8507.60.00 for batteries). | Improves certainty but limits the incentive to specific classified products. |
A practical view of the products, services, rates and compliance areas affected by the Act.
Read this chapterA mix of new import duties on construction and electronics inputs, higher duty on sugar and tobacco, and several proposals that Parliament chose not to adopt.
| Item | Change under the Finance Act, 2026 | Summary Impact |
|---|---|---|
| Antique, Vintage & Classic Vehicles | Excise duty at 50% of excisable value on vehicles first registered at least 30 years before purchase and valued at KSh 10 million or more. | Raises the cost of acquiring such vehicles and creates clearer tax treatment for luxury collector vehicles. |
| Telephones & Cellular Phones (proposals dropped) | The Bill's proposal to tax phones at activation, and to raise the rate from 10% to 25%, were both not adopted. | No change — imported mobile phones remain at 10% excise, supporting affordability and digital access. |
| Sweetened & Unsweetened Juices | Two-tier structure: KSh 14.14/litre (unsweetened) and KSh 20/litre (sweetened). | Sweetened juice becomes more expensive, potentially encouraging reformulation with less sugar. |
| Bottled Drinking Water | Removed from excise duty. | Lowers the tax burden and supports affordability and access. |
| Small Independent Brewers & Extra Neutral Alcohol | Reduced rates retained: KSh 10/centilitre of pure alcohol (small brewers); KSh 80/litre (extra neutral alcohol for licensed manufacturers). | Protects small brewers and compliant producers from a steep tax increase. |
| Tobacco Products | Excise increased; new rate of KSh 2,000/kg introduced for oral smokeless tobacco products. | Tobacco becomes more expensive, which may reduce consumption and raise revenue. |
| Imported Sugar | Excise raised from KSh 7.50 to KSh 40 per kilogram (exemptions retained for registered pharmaceutical manufacturers and licensed sugar refiners). | Supports local sugar production but raises input costs for manufacturers reliant on imports. |
| Imported Plastic Articles, Gas Cylinders & Ceramic Products | Plastics retained at 10% (imports only); gas cylinders clarified under tariff 7311.00.10; ceramics get a hybrid rate of 5% of excisable value or KSh 50/kg, whichever is higher. | Reduces classification disputes and safeguards revenue against undervaluation, while protecting local manufacturers. |
| EAC Excise Relief & Sugar Confectionery | Broad proposal to remove EAC relief was largely rejected (only float glass, Tariff 7005, loses the exclusion); "imported" sugar confectionery keeps its KSh 85.82/kg rate. | Maintains regional trade relief while protecting local confectionery manufacturers. |
| Imported Wood, Timber & Plastic Sheeting | 30% excise on imported MDF boards, particle boards, plywood and specified timber products; new excise on banner sheeting, flex banners, PVC sheeting and selected plastic sheets. | Encourages local production of wood-based and advertising/packaging materials, but raises costs for businesses reliant on imports. |
| Imported Sanitary Fittings & Chip Modules | 35% excise on imported shower heads/heating elements; new 10% excise on pre-personal chip modules. | Increases cost of imported fittings and selected electronic components, with a competitive edge for local alternatives. |
| Coal (proposal rejected) | Parliament rejected the proposed 5% excise duty on coal. | Maintains the current position, avoiding extra costs for energy-intensive industries. |
| Issue | Change under the Finance Act, 2026 | Summary Impact |
|---|---|---|
| Betting & Gaming Deposits | Broadens the definition of taxable deposits to amounts made available for betting or gambling purposes, and widens "amount deposited" to include cash, cash equivalents, credits, incentives, tokens, chips and similar instruments. | Significantly widens the excise duty base; operators face higher liabilities and must update systems for the expanded scope. |
| Recognition of Virtual Assets | Incorporates statutory definitions of virtual assets and virtual asset service providers by referencing the Virtual Asset Service Providers Act, 2025. | Provides legal certainty for taxing digital assets and lays the foundation for stronger regulation and compliance. |
| NIS Excise Duty Exemption | Goods supplied for official use by the National Intelligence Service are now included among entities eligible for excise duty exemption. | Harmonizes treatment of national security agencies with limited impact on government revenue. |
The changes affecting import documentation, declarations, exemptions and infrastructure-related levies.
Read this chapterThe Finance Bill proposed reducing the share of IDF receipts paid into the PFM Fund from 20% to 10% and removing the 10% ring-fenced allocation for revenue enforcement. The Finance Act, 2026 dropped that proposal and kept existing allocations unchanged.
The Act adopts the Bill's proposal to apply East African Community Customs Management Act valuation, collection and enforcement rules to all fees and levies in Part III of the MFLA.
The Act narrows Chapter 88 exemptions for both IDF and RDL to specific tariff headings (larger aircraft and aircraft parts); the proposed new exemption for imported cellular telephones was not adopted; a new targeted exemption was added for goods used in LPG storage tank construction (KES 5 billion minimum investment, Energy CS recommendation).
A focused explanation of the treatment of qualifying transfers and investment structures.
Read this chapterThe Finance Act, 2026 kept the Finance Bill's amendment to Section 96A by adding a new paragraph (c) to cover instruments whose effect is to transfer a beneficial interest in property to a REIT, even where legal title is not directly transferred.
What the revised allocation framework means for the administration of road maintenance funds.
Read this chapterThe Finance Act, 2026 retains a change from the Finance Bill that reduces the share of the Road Maintenance Levy allocated to the Road Annuity Fund from KES 3.00 to KES 1.50 per litre of petroleum sold.
Our role is to translate technical legislation into decisions businesses can act on with confidence.
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From tax compliance and advisory to audit and assurance services, RWK Africa supports businesses at every stage of growth.
At RWK Africa, we believe good advice should be accessible, timely, and grounded in real business needs. Whether you're a growing SME or an established enterprise, we're committed to being a trusted partner in your compliance and growth journey.
We hope this edition helps you navigate the Finance Act 2026 with clarity and confidence. For personalized tax advice or to discuss how these changes affect your business, reach out to our team.