The Finance Bill, 2026 (“the Bill”) seeks to introduce amendments to Kenya’s principal tax statutes, including the Income Tax Act, Tax Procedures Act, Value Added Tax Act, Excise Duty Act, and Stamp Duty Act.
The Bill forms part of the Government’s broader fiscal and economic policy framework aimed at enhancing domestic revenue mobilization, broadening the tax base, strengthening tax administration, and aligning the tax regime with evolving business and digital economic models.
As with all legislative proposals, the Bill is expected to undergo parliamentary consideration and public participation in accordance with Article 118 of the Constitution of Kenya, which requires Parliament to facilitate public involvement in the legislative process. Stakeholders, including taxpayers, industry players, professional bodies, and the general public, are therefore expected to review the proposals and submit comments before enactment.
The Bill Proposes;
- To amend the definition of management and professional fees to include interchange fees and merchant service fees arising from card-based payment transactions.
- To amend the definition of royalties to include payments relating to proprietary digital platforms, payment networks, and software distribution arrangements.
- To subject non-resident rental income to final withholding tax and to increase the residential rental income tax rate from 7.5% to 10%.
- To introduce a 5% tax on the customs value of imported second-hand clothing and footwear as part of measures aimed at expanding the tax base.
- To broaden the taxation framework applicable to insurance companies by shifting the basis of taxation from life insurance business to statutory funds in line with the Insurance Act.
- To revise the timelines for filing income tax returns by requiring submission by the last day of the fourth month following the end of the year of income, while requiring nil returns to be filed within one month after the end of the relevant year of income.
- To exempt pension benefits arising from death from income tax.
- To introduce enhanced reporting obligations for virtual asset service providers and facilitate the international exchange of digital asset information.
- To amend the VAT framework by requiring reversal of input VAT attributable to unsold supplies that subsequently become exempt and by extending the VAT refund claim period to three years.
- To increase the duty-free threshold for travelers from USD 300 to USD 2,000, thereby easing the tax burden on qualifying personal imports.
- To expand exempt supplies while removing various items from zero-rating, particularly in the agriculture, energy, and manufacturing sectors, including imported mobile phones, motorcycles, electric bicycles and buses, solar products, and lithium-ion batteries.
- To expand the scope of excise duty by introducing a 50% excise duty on antique and vintage motor vehicles, increasing excise duty on telephones to 25%, and shifting the tax point for telephones to activation.
- To amend the provisions restricting the Commissioner from issuing agency notices where a taxpayer has appealed against an assessment.
- To exempt transfers relating to Real Estate Investment Trusts (REITs) from stamp duty.
"Stakeholders, including taxpayers, industry players, professional bodies, and the general public, are therefore expected to review the proposals and submit comments before enactment."
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