The Finance Act, 2026 (the Act) was assented into law by the President on 23 June 2026 and gazetted on 26 June 2026. The Act introduces significant changes to tax laws in Kenya, specifically the Income Tax Act (Chapter 470, Laws of Kenya), the Value Added Tax Act, 2013, the Tax Procedures Act, 2015, the Miscellaneous Fees and Levies Act, 2016, the Excise Duty Act, 2015, the Stamp Duty Act, the Affordable Housing Act, 2024, and the Road Maintenance Levy Fund Act (Chapter 427, Laws of Kenya).
The changes are aimed at broadening the tax base, targeting both residents and non-residents, through the creation of new taxing points across various sectors. The Act also introduces a range of structural reforms to Kenya’s tax framework aimed at enhancing the Kenya Revenue Authority’s mandate on domestic revenue mobilisation, digitisation and strengthened anti-avoidance rules, among others. Additionally, the Act introduces targeted reliefs such as the tax amnesty program and other incentives aimed at stimulating investment in some sectors such as Public Private Partnerships.
All provisions of the Act came into force on 1 July 2026, save for the provisions introducing the new income tax return filing timelines for individuals and the amendment to the taxation of non-resident persons in the extractive industries, which take effect on 1 January 2027, and the amendments to the Tax Procedures Act relating to the import documentation, which take effect on 1 September 2026.
In May 2026, we issued a legal alert analysing the proposals contained in the Finance Bill, 2026 (the Bill). This update examines the amendments enacted under the Act and highlights the key implications for taxpayers and investors.
Proposed Amendments to the Income Tax Act
The Act has introduced various amendments to the Income Tax Act (the ITA) which are intended to increase revenue collection through introduction of new taxes and rationalisation of tax exemptions, reliefs and incentives that are enjoyed under the current income tax regime. The income tax amendments are highlighted below:
Expansion of withholding tax (WHT) to capture card payment network fees, interchange fees, and merchant service fees
Effective Date: 1 July 2026
The Act has introduced amendments to the ITA, effectively bringing card payment network fees, interchange fees, and merchant service fees within the withholding tax (WHT) ambit, at 5% for residents and 20% for non-residents. Non-residents may benefit from reliefs under the existing Double Taxation Agreements (DTAs). Consequently, banks, payment service providers, fintechs, and merchants accepting card payments may face materially higher operating costs.
This is a result of two amendments targeting the digital card payment ecosystem. First, the Act has expanded the definition of ‘management or professional fee’ to include interchange fees and merchant service fees arising from transactions that use a card as a means of payment. Second, the Act has expanded the definition of ‘royalty’ to capture ‘payments for the use or right to use proprietary digital payment card network or platform, including access, participation or usage rights in such system through a card, whether the consideration is periodic or transaction-based and whether or not the payment is described as a service fee, transaction fee, network fee, assessment fee, processing fee or similar charge’.
As we had analysed in our Finance Bill alert, these amendments are a targeted legislative override of the Supreme Court of Kenya’s (SCOK) landmark decision in the case of Barclays Bank of Kenya Limited (now Absa Bank Kenya PLC) v Commissioner for Domestic Taxes (SC PETITION NO. 12 (E014) OF 2022) (the Absa Decision) where the SCOK held that interchange fees, merchant service fees, and card network participation fees do not constitute ‘royalties’ or ‘management or professional fees’ under the ITA and are therefore not subject to WHT.
The Act effectively overrides the Absa Decision, with the implication of these amendments being that payments to card networks (domestic and international), payment processors, switching systems, and clearing and settlement platforms will now be treated as royalties or management and professional fees attracting WHT at the specified rates.
Non-resident businesses operating in jurisdictions which have concluded a DTA with Kenya should consider whether DTA reliefs are available, bearing in mind that the new definitions under the ITA are broader than the definitions set out in most of Kenya's DTAs as well as the OECD Model Convention, potentially giving rise to double taxation concerns and characterisation disputes. As such, we encourage all affected parties to seek advice on the impact of these amendments on their payment structures, operations, cost models, treaty availability and overall WHT compliance obligations.
It is worth noting that the digital infrastructure limb within the definition of royalty is narrower in the Act than originally proposed in the Bill. The Bill used the phrase ‘proprietary digital platform’ broadly, whereas the Act confines this to a ‘proprietary digital payment card network or platform’, anchoring the provision specifically to card-based payment infrastructure. This narrowing provides some clarity on the scope of the expanded definition of royalty in the digital payment ecosystem.
Transition to the new betting and gambling regulatory framework
Effective Date: 1 July 2026
The Act has amended the definitions of ‘withdrawals’ and ‘winnings’ under the ITA to align with the newly enacted Gambling Control Act, 2025, which repealed the Betting, Lotteries and Gambling Act (Chapter 131, Laws of Kenya).
The amendment reinstates the definition of ‘winnings’ which was previously deleted by the Finance Act 2025 to mean ‘a payout from a lottery or prize competition by a person licensed under the Gambling Control Act, 2025’. The WHT rate on winnings is 20% for both residents and non-residents.
In addition, the new definition of ‘withdrawals’ has been expanded, from wallet withdrawals only to now cover “any amount of money, cash equivalent, or money’s worth paid or disbursed to the account of a player by a person licensed under the Gambling Control Act, 2025.”
Accordingly, any withdrawal, be it cash, credits, in platform transfers, vouchers, or non cash benefits, will trigger WHT the moment it is paid or disbursed to the account of the player. The WHT rate on withdrawals is 5% for both residents and non-residents.
Notably, the reinstated definition of ‘winnings’ is confined to lottery and prize competition pay-outs, excluding betting and gaming pay-outs which fall instead under the broader definition of ‘withdrawals’. This distinction is important for licensed operators structuring their platforms and product offerings, as the characterisation of a pay-out will determine the applicable rate.
Introduction of non-resident rental income tax
Effective Date: 1 July 2026
The Act introduces a new tax known as the non-resident rental income tax (NRRT) targeting non-resident persons whose income is accrued in or derived from the use or occupation of property situated in Kenya. The applicable NRRT rate is similar to the WHT under the current regime, whereby a non-resident person whose income is accrued or derived from the use or occupation of property situated in Kenya is subject to a WHT of 30% of the gross amount payable in the case of immovable property and 15% in the case of movable property.
Under this framework, non-resident landlords will be required to register and account for NRRT through a simplified registration framework to be prescribed by the Kenya Revenue Authority (KRA). The non-resident landlords will be required to submit a return and pay the NRRT due on or before the twentieth day of the month following the end of the month for which the rent is paid.
NRRT will be exempt where rental income is received by a resident person on behalf of a non-resident person, provided that the resident person has already accounted for withholding tax.
Notably, the Kenya Revenue Authority is yet to publish the regulations setting out the simplified registration framework for NRRT. However, given that the draft residential rental income tax regulations are currently under public consultation, it is likely that the corresponding NRRT regulations will follow in due course.
Non-resident investors deriving income from the use or occupation of property situated in Kenya, whether movable or immovable such as Kenyan-based real estate, should therefore review their holding and rental income structures to determine the most efficient compliance and risk management approach under the new regime.
Changes to taxation of trusts
Effective Date: 1 July 2026
The Act has repealed and replaced section 11 of the ITA, which governs the taxation of trust income received by trustees and executors, as well as income distributed by trustees and executors to beneficiaries.
The Act has simplified and provided clarity on the taxation of trust income as follows:
- (i) qualifying dividends and qualifying interest which have been taxed in the hands of the trustee or executor at the applicable withholding tax rates would not be subject to further tax upon distribution to beneficiaries; and
- (ii) by establishing a clear single-point taxation principle, such that once a trustee or executor has paid tax on the chargeable income of a trust, the beneficiaries shall not be liable to pay any further tax on that income upon distribution. This eliminates any ambiguity regarding the extent to which beneficiaries may be assessed on trust income that has already borne tax at the trustee level.
These changes are a welcome simplification of the trust taxation regime, providing greater clarity for trustees and executors whilst offering a more predictable framework for those utilising trusts as a vehicle for wealth management.
Clarity on bad debt deductibility
Effective Date: 1 July 2026
The Act has clarified the scope of bad debt deductibility for persons carrying out money-lending businesses and financial institutions licensed under the Banking Act, the Microfinance Act, and the Central Bank of Kenya Act, to expressly include the principal component, interest component, and any other amount relating to a debt which subsequently becomes a bad debt.
Recent jurisprudence from the Tax Appeals Tribunal (the Tribunal) and the High Court has provided contrasting interpretations of the scope of bad debt deductibility, specifically, whether deductibility of bad debts which arise from a loan is restricted to interest only or extends to the principal sum. The Tribunal in the case of Premier Credit Limited v Commissioner of Domestic Taxes (Tax Appeal E1149 of 2024) [2026] KETAT 23 (KLR) held that the principal loan amounts form part of a lender's capital asset and are therefore not deductible, concluding that only interest and other associated fees qualify for deduction.
The High Court arrived at a different conclusion in Branch International Limited v Commissioner of Domestic Taxes (HCITA/E080/2025 & E089/2025), holding that principal loan amounts form part of a lender's stock-in-trade rather than its capital assets and are therefore deductible.
The amendment codifies the treatment of bad debt deductions for persons carrying on a money lending business by expressly providing that allowable deductions include the principal amount, accrued interest and any other amounts relating to the debt, as determined in accordance with the Commissioner's guidelines. This is a welcome development, as it provides much-needed certainty on the scope of deductible bad debts for lenders and is expected to reduce disputes with the KRA.
Extension of loss-carry forward for large investors
Effective Date: 1 July 2026
The Act has extended the loss-carry forward period for investors who, prior to 1 July 2025, had invested at least KES 10 billion in Kenya and had accumulated tax losses during that prior investment period. By way of background, the Finance Act 2025 amended Section 15(4) of the ITA by introducing a five-year cap to the carry forward of tax losses. Prior to this amendment, the law allowed for the carry forward of tax losses for an indefinite period.
This amendment allows taxpayers who had invested at least KES 10 billion prior to 1 July 2025 to carry forward and apply any accruing losses beyond the five-year statutory period until they are fully utilised.
This extension is a welcome move as it provides significant relief to large investors by preserving their ability to offset their accumulated losses against future taxable income and fully recover their investment. It also signals the government’s intention to incentivise large scale domestic and foreign investment in Kenya, particularly in capital intensive industries such as energy, manufacturing and infrastructure. However, as Kenya continues to position itself as the region's leading investment destination, extending a similar framework to future qualifying investments, beyond those made prior to 1 July 2025, would further reinforce that ambition and provide the long-term fiscal predictability that large-scale investors require.
Extension of capital gains tax (CGT) to capture all offshore transfers with a Kenyan nexus regardless of the shareholding threshold or value threshold
Effective Date: 1 July 2026
The Act has expanded the scope of Kenya’s CGT regime applicable to offshore disposals to cover gains arising from the alienation of shares by a non-resident where:
- the shares “derive their value from Kenya”; or
- the alienation results in a “change of the group membership of a company resident in Kenya”; or
- the alienation results in a “change of ownership, title in, or interest in property located in Kenya”.
The upshot of these changes is that an indirect transfer of shares where the underlying company is resident in Kenya, or where the underlying property is in Kenya will trigger CGT in Kenya. There is no minimum threshold applicable to this new CGT provision.
The amendment renders the existing offshore CGT thresholds introduced on 1 January 2024 largely redundant. Rather than limiting offshore CGT to transactions meeting the prescribed immovable property test or residency test, it operates as a catch-all provision, bringing within the offshore CGT regime any disposal by a non-resident with a Kenyan economic nexus, regardless of the extent of that nexus.
The wording of the amendment raises critical definitional concerns. In particular, the phrase "derive their value from Kenya" is not defined. There is no de minimis threshold, no specified look-back period (unlike the current CGT framework, which uses a 365-day lookback), and no mechanism for apportioning value where the offshore company has global multi-jurisdictional operations. The "change of group membership" limb is particularly broad, potentially capturing internal group reorganisations and routine corporate restructurings, as it contains no minimum shareholding threshold, such as a change of 20% or 50% of group membership, that would otherwise confine its reach.
All parties to group restructurings or M&A transactions with a Kenyan nexus (whether as buyers, sellers, advisors, or lenders) should incorporate a Kenyan CGT analysis for offshore share transfers or internal reorganisations as a standard element of transaction due diligence and structuring.
Changes to the transfer pricing regime
i. Extension of CbC report content requirements and filing timelines for MNES
Effective Date: 1 July 2026
Country-by-country (CBC) reporting is a key transfer pricing compliance tool under the OECD's Base Erosion and Profit Shifting (BEPS) framework, requiring multinational enterprise (MNE) groups to report jurisdiction-specific financial and operational information to assist tax authorities in assessing transfer pricing risks and identifying instances where profits may be misaligned with economic activity.
The ITA provides for two filing mechanisms: the primary mechanism and the secondary mechanism. Under the primary mechanism, the ultimate parent entity (UPE) files the CbC report in its jurisdiction of residence. Where the UPE is unable or not required to file, whether due to the absence of a local filing obligation, a lack of a competent authority agreement with Kenya, or a systemic failure in its jurisdiction of tax residence, the constituent entity resident in Kenya must file the CbC report under the secondary mechanism.
Previously, the prescribed CBC report content requirements and the twelve-month filing deadline were expressly applicable only to filings under the primary mechanism, creating uncertainty as to their application to secondary mechanism filings. The Act now expressly extends both the prescribed content requirements and the twelve-month filing deadline to secondary mechanism filings, providing greater legal certainty and a clearer statutory basis for enforcement. Kenyan constituent entities that may be required to file under the secondary mechanism should review their CbC reporting processes to ensure compliance with the amended requirements.
ii. Revised definition of ultimate parent entity
The Act replaces the previous definition of a UPE, which focused on whether an entity was not controlled by another entity and directly or indirectly owned or controlled one or more constituent entities of an MNE group, with a more detailed definition aligned to financial reporting principles.
Under the revised definition, a UPE is the constituent entity that holds a sufficient interest in one or more other constituent entities and is required (or would be required if its equity interests were publicly traded) to prepare consolidated financial statements, provided that no other constituent entity holds a sufficient interest in it. This shifts the determination of a UPE from a control-based test to one based on consolidation requirements, aligning Kenya's framework more closely with the OECD BEPS Action 13 standard. However, the Act does not define the term "sufficient interest", which may create interpretive challenges for groups with complex ownership structures. Multinational groups should therefore reassess whether the amended definition affects their existing CBC reporting positions.
Accelerated filing timelines for income tax returns for individuals
Effective Date: 1 January 2027
The Act shortens the statutory filing deadline for income tax returns for individuals from six months to four months after the end of the year of income. Individual taxpayers should, therefore, review their filing calendars and compliance procedures to reflect the accelerated general filing deadline. Notably, the Bill as originally proposed provided a one-month deadline for nil filers and a four-month deadline for all other filers, with the enacted position representing a more measured outcome that retains a single unified deadline for individuals whilst dropping the more onerous nil-filer requirement.
Enhanced investment allowances for petroleum or gas storage facilities and clarity on industrial building allowance
Effective Date: 1 July 2026
The Act has revised the investment allowance regime under the ITA by:
- enhancing the investment allowance deductible for petroleum or gas storage facilities to 100% in the first year of use, provided the investment is in excess of KES 10 billion. This amendment is intended to incentivize large scale investment in petroleum and gas storage facilities; and
- clarifying that the 10% investment allowance rate applicable to industrial buildings is claimable in equal instalments, providing taxpayers with certainty on how to spread the deduction over the relevant allowance period.
Other Noteworthy Changes to the Income Tax Act
i. The exclusion of gratuity payments from taxable employment income
Effective Date: 1 July 2026
The Act has introduced an income tax exemption for gratuity contributions made under an employment arrangement provided the employee has served continuously for at least three years, and the total contributions do not exceed 30% of the emoluments earned by the employee for the period of the employment contract. This amendment is an enhancement to align with the gratuity-related changes introduced by the Finance Act, 2025, which granted an income tax exemption on all gratuity payments accruing on or after 1 July 2025.
ii. Re-introduction of withholding tax on sale of scrap metal
Effective Date: 1 July 2026
WHT on the sale of scrap metal has been re-introduced at the rate of 1.5%, applicable to both residents and non-residents. The implication of this amendment is that it creates a formal paper trail for the entire scrap metal trade and is aimed at curtailing illicit activity in the sector. Buyers of scrap metal will now be WHT agents, with all attendant filing and remittance obligations effectively creating a trail of scrap metal trade.
iii. CGT and Stamp Duty exemption on the transfer of property to a Real Estate Investment Trust (REIT)
Effective Date: 1 July 2026
The Act exempts transfers of property to a REIT registered with the Commissioner from CGT under the ITA and stamp duty under the Stamp Duty Act. By exempting transfer taxes on such transactions, the Act removes a significant structural barrier to REIT seeding in Kenya. Investors with substantial real estate portfolios may now explore REIT listing strategies without a prohibitive tax cost on the initial property injection.
iv. Clarification of tax-exempt benefits arising due to death
Effective Date: 1 July 2026
The Act clarifies that pension benefits arising due to death are exempt from income tax, removing any ambiguity as to their tax treatment. This clarification is consistent with the underlying policy rationale that amounts received as a consequence of death, whether by dependants, beneficiaries, or estates, are compensatory rather than income in the ordinary sense.
v. Harmonisation of the extractive sector tax rates with the general tax rate framework
Effective Date: 1 January 2026
The Act has introduced two amendments to the taxation of extractive industry licensees and contractors, harmonising the extractive sector with the general non-resident tax framework. First, the non-resident corporate income tax rate has been reduced from 37.5% to 30%. Second, the Act has incorporated the prevailing 15% repatriated income rate applicable to non-residents to the extractives sector.
vi. Repeal of the preferential corporate tax rate for residential housing developers
Effective Date: 1 July 2026
The Act has also deleted the preferential corporation tax rate of 15% for an approved company that constructs at least 100 residential units annually. The withdrawal of this incentive means that affected companies will revert to the standard corporation tax rate of 30%, effectively doubling their tax liability.
This is a significant policy reversal that appears to counter the Government's broader affordable housing agenda. This change could also potentially result in developers of affordable housing units increasing prices for the residential units in order to preserve their profit base.
vii. Repeal of the reduced dividend tax rate applicable to citizens of the East African Community partner states
Effective Date: 1 July 2026
The Act has also deleted the reduced dividend tax rate of 5% currently applicable to citizens of the EAC. Therefore, dividend payments to citizens of the EAC partner states will be subject to dividend tax of 15%.
viii. Repeal of the preferential corporate tax rate for residential housing developers
Effective Date: 1 July 2026
The Act has also deleted the preferential corporation tax rate of 15% for an approved company that constructs at least 100 residential units annually. The withdrawal of this incentive means that affected companies will revert to the standard corporation tax rate of 30%, effectively doubling their tax liability.
This is a significant policy reversal that appears to counter the Government's broader affordable housing agenda. This change could also potentially result in developers of affordable housing units increasing prices for the residential units in order to preserve their profit base.
Key proposals from the Finance Bill that were not enacted
The Bill contained several proposed amendments to the ITA that did not receive Parliamentary approval. The key proposals that were dropped are set out below.
i. Deletion of proposed expansion of the definition of royalty to include software distribution payments
The proposal to expand the definition of “royalty” under the ITA to include “the distribution of software where regular payments are made for the use of the software through the distributor” was shelved. This means that payments made by a local distributor to a software owner/licensor for the right to sub-license or distribute software to end users will not be subject to withholding tax as ‘royalties’. Notably, the shelving of this proposal follows various stakeholder submissions to the Departmental Committee on Finance and National Planning (the "Committee") and the Committee’s subsequent recommendation to Parliament to exclude software distribution on the basis that it does not constitute an activity that generates royalties, in line with international best practice. This reinforces the importance of stakeholder participation in the legislative process, demonstrating that well-reasoned public submissions can meaningfully shape the final form of tax legislation.
ii. Introduction of a minimum deemed dividend distribution threshold
The proposal empowering the Commissioner to introduce a minimum deemed dividend distribution threshold of 60%, where a company has accumulated undistributed profits and is able to make a distribution without adversely affecting the company's business, was not enacted. As a result, retained earnings remain protected from arbitrary profit distributions that would otherwise not reflect the unique commercial realities of the business.
Amendments to the Value Added Tax Act, 2013
Effective Date of all amendments: 1 July 2026
The Act has made various amendments to the VAT framework, largely aimed at broadening the VAT base; rationalising exemptions; strengthening compliance; and reclassifying supplies across multiple sectors. These changes affect a broad range of industries, including healthcare, agriculture, telecommunications, renewable energy, financial services, and infrastructure development.
A detailed analysis of the changes to the VAT Act is set out as follows:
VAT treatment of labour outsourcing and employee placement services
Employee-related costs incurred by labour outsourcing agencies and employee placement service providers, including salaries, wages, statutory deductions and other employment-related expenses, qualify as disbursements made on behalf of their clients. Consequently, these costs are to be excluded from the taxable value of the supplier's services for VAT purposes, with VAT being chargeable only on the supplier's service fee. This amendment provides much-needed clarity on the VAT treatment of employee-related costs, an issue that has been the subject of recent disputes, including the landmark cases of Commissioner of Domestic Taxes vs Stratostaff E.A Limited, ITA No. E048 of 2025 and Commissioner of Domestic Taxes vs Techsavanna Company Limited, ITA No. E228 of 2023.
This amendment was not contained in the Bill but was introduced during the legislative process and enacted as part of the Act.
Restriction of VAT exemption on finance charges in hire purchase transactions to licensed players
Effective 1 July 2026, the VAT exemption for finance charges under a hire purchase agreement is applicable only where the person making the supply is duly licensed, and the hire purchase agreement is registered in accordance with the Hire Purchase Act. Where either of these conditions is not satisfied, the finance charges will form part of the taxable consideration and will be subject to VAT. This amendment is intended to ensure that the exemption applies only to duly regulated hire purchase transactions.
Input VAT deduction for supplies to government security agencies
The rules on deductibility of input VAT have been amended to allow registered persons to claim input VAT incurred on supplies made to the Kenya Defence Forces, the Defence Forces Welfare Services, the National Intelligence Service, and the National Police Service. A taxpayer may also apply for a VAT refund in respect of excess input VAT arising from such supplies.
The deduction is available:
- where the supplies are supported by documentation prescribed by the Commissioner;
- where the deductions are limited to input tax directly attributable to those supplies; and
- where the input tax is wholly attributable to these exempt supplies, it is not subject to input VAT apportionment.
The new provision eliminates the restriction on input VAT recovery for suppliers to the specified security agencies, thereby reducing the irrecoverable VAT cost of doing business with these agencies and may enhance the efficiency of public procurement.
Adjustment of input VAT claims where the supply subsequently becomes exempt
The Act introduces a new section 17A to the VAT Act requiring registered persons to account for the input tax attributable to any unsold stock where the goods are reclassified from taxable to exempt supplies. Where input VAT has already been claimed prior to the reclassification, the taxpayer must account for the attributable input VAT in the VAT return for the period in which the supplies become exempt. This amendment prevents taxpayers from retaining input VAT deductions on purchases relating to supplies that ultimately become exempt and underscores the need for businesses to regularly review their inventory and VAT positions to ensure compliance.
In practice, affected taxpayers will need to identify stock on hand as at the effective date of reclassification and determine the input VAT previously claimed on that stock.
Extension of the bad debt VAT refund eligibility period from two years to three years
The statutory period within which a taxpayer may first apply for a VAT refund in respect of bad debts has been extended from two years to three years. This amendment has significant cash flow implications, as taxpayers are required to account for and remit VAT to the KRA upon making a taxable supply, regardless of whether payment has been received from the customer. By extending the waiting period before a refund claim can be made, the time period during which taxpayers bear the cost of unrecovered VAT is prolonged, thereby increasing working capital pressures, particularly for businesses with high levels of unpaid receivables.
Changes to the First and Second Schedule of the VAT Act
The Act introduces various amendments, including both the introduction of new VAT exemptions and the reclassification of certain supplies from zero rated to exempt supplies and from exempt to standard rated. Investors in several sectors will either lose input VAT recoverability as supplies move from zero-rated to exempt, or face higher consumer-facing VAT costs where previously exempt supplies become standard-rated. The amendments affect a wide range of sectors including healthcare, manufacturing, energy, tourism, and infrastructure development.
Click here to see our analysis of the key amendments.
Amendments to the Excise Duty Act, 2015
The Act introduces a range of amendments aimed at broadening the excise duty base and introducing new tax points. The impact of these amendments has been analysed below.
Introduction of a definition for “antique, vintage or classic vehicle”
Effective Date: 1 July 2026
A new definition of "antique, vintage or classic vehicle" has been introduced to mean a motor vehicle first registered at least 30 years before the date of purchase and valued at not less than KES 10 million, exclusive of depreciation. This definition forms the basis for a new excise duty category subjecting the importation of such vehicles to excise duty at a rate of 50%.
Refund of excise duty paid on inputs used in the manufacture of exempt goods that are imported or purchased locally by the Defence Forces Welfare Services
Effective Date: 1 July 2026
The Act introduces a new paragraph under section 29 of the Excise Duty Act allowing the Commissioner to refund excise duty paid on inputs used by a licensed or registered manufacturer to manufacture exempt excisable goods to be supplied to the Defence Forces Welfare Services, provided that the inputs are directly attributable to the manufactured goods.
The amendment removes the excise duty cost embedded in qualifying production inputs, ensuring that the exemption granted to the Defence Forces Welfare Services is fully realised and reducing the tax burden on manufacturers supplying exempt goods.
Amendments to item descriptions and corresponding rates in the First Schedule
Click here to see amendments to item descriptions and corresponding rates in the First Schedule.
New tariff descriptions and corresponding rates
Click here to see the new tariff descriptions and corresponding rates.
Betting and gaming: Broadening of the excise base from wallet deposits to amounts made available for betting or gambling purposes
Effective Date: 1 July 2026
The Act amends paragraphs 4A and 4B of Part II of the First Schedule to the Excise Duty Act by replacing the phrase "deposited into a customer's betting wallet" with "deposited for betting purposes" in paragraph 4A, and replacing the phrase "deposited into a customer's gaming wallet" with "deposited for gambling purposes" in paragraph 4B. In addition, the proviso to paragraph 4A, which excluded horse racing from the application of excise duty on betting, has been deleted.
Prior to the amendment, paragraph 4A imposed excise duty at the rate of 5% on amounts deposited into a customer's betting or gaming wallet but expressly excluded horse racing from its scope.
The amendment broadens the scope of the excise duty by shifting the taxable event from deposits into customer betting or gaming wallets to amounts deposited for betting or gambling purposes generally. This expands the range of transactions that may be subject to excise duty, including payment methods that do not involve a betting or gaming wallet. Further, the deletion of the horse racing exemption brings deposits made for horse racing betting within the scope of the excise duty, subjecting such transactions to the same treatment as other forms of betting.
The Act also amends Part III of the First Schedule by replacing the definition of "amount deposited into a customer's betting wallet" with a broader definition of "amount deposited," covering all money or money's worth paid, transferred, credited, or otherwise made available for betting or gambling purposes to a licensed person under the Gambling Control Act. The definition applies regardless of whether the value is provided by a player or operator, held in an account, or converted into chips, tokens, tickets, credits, or similar instruments.
These amendments appear to be aimed at broadening the tax base to capture alternative betting and gambling value flows, including promotional credits, operator-funded credits, and virtual asset-based transactions.
Amendments to the Tax Procedures Act, 2015
The Act introduces several amendments to the Tax Procedures Act, 2015 (the TPA) aimed at strengthening tax administration, expanding third-party reporting obligations, enhancing KRA’s access to taxpayer information, and broadening the Commissioner’s enforcement and recovery powers. The amendments also reflect KRA’s continued shift towards data-driven tax administration, including through prepopulated returns, virtual asset reporting, automatic exchange of information and enhanced electronic tax system compliance.
Introduction of virtual asset tax reporting framework
Effective Date: 1 July 2026
The Act introduces definitions of “virtual asset” and “virtual asset service provider” (VASP) by reference to the Virtual Asset Service Providers Act, 2025, and establishes a reporting and information exchange framework requiring VASPs to file annual returns with the Commissioner on reportable users and controlling persons. The framework applies to VASPs facilitating exchanges, operating trading platforms, or acting as intermediaries or counterparties in virtual asset transactions.
The Act also enables Kenya to enter into agreements with foreign jurisdictions for the automatic exchange of information on virtual asset transactions, including customer due diligence information, reportable accounts and anti-avoidance arrangements. Such exchanges are required to comply with the Data Protection Act, be limited to information that is necessary, relevant and proportionate, and may only occur where the receiving jurisdiction has adequate data protection safeguards. The Commissioner is also required to maintain records of all disclosures made.
The Act also introduces significant penalties for non-compliance, including KES 100,000 for each false statement; KES 100,000 for each omission in an information return and KES 1 million for failure to file an information return or nil return. A defence is available where a reasonable effort was made to obtain the relevant information from a third party.
We view this as a significant expansion of KRA’s digital asset enforcement powers and part of a broader global shift towards greater tax transparency in the virtual assets sector. The changes are likely to reduce transactional opacity and facilitate greater scrutiny of gains, trading income, offshore holdings and cross-border transfers.
Introduction of prepopulated tax returns
Effective Date: 1 July 2026
The Act empowers the Commissioner to generate prepopulated tax returns using information available through KRA systems and third-party data sources. The Act's framework requires that:
- the Commissioner must notify the taxpayer upon generating a prepopulated return;
- prepopulated returns must be issued on or before the end of January of each year of income;
- taxpayers have a two-month window from the date of issue to confirm or amend the prepopulated return; and
- taxpayers may rely on a prepopulated return (where confirmed or unamended) when lodging their returns.
The amendments demonstrate KRA's broader transition towards automated and data-driven tax administration. However, the automated framework also increases the need for reconciliations due to system-generated discrepancies and may lead to increased disputes where prepopulated data is inaccurate or inconsistent with underlying taxpayer records.
Taxpayers remain responsible for verifying the accuracy of prepopulated returns and should engage the Commissioner within the stipulated timelines where the prepopulated data does not reflect their actual position.
Extension of the tax amnesty programme
Effective Date: 1 July 2026
The Act reintroduces the tax amnesty programme to provide relief for penalties and interest in relation to tax liabilities up to 31 December 2025. The waiver on penalties and interest applies where the principal tax is paid before 31 December 2026.
The reintroduction of the amnesty significantly broadens the availability of relief from penalties and interest for taxpayers with historical liabilities and appears aimed at encouraging voluntary compliance and settlement of legacy tax disputes. Taxpayers with outstanding liabilities and ongoing tax disputes may therefore wish to evaluate whether the amnesty framework presents an opportunity for regularisation and settlement of their tax affairs.
Introduction of consolidated general anti-avoidance rules (GAAR)
Effective Date: 1 July 2026
The Act repeals the anti-avoidance rules set out in the Income Tax Act and the VAT Act and consolidates the anti-avoidance rules under the TPA. In accordance with the new provision, where the Commissioner determines that a taxpayer has entered into a tax avoidance scheme, a tax benefit has arisen and obtaining the tax benefit was one of the purposes of the arrangement, the Commissioner may determine the taxpayer's liability as though the arrangement had not been entered.
An expansive definition has been adopted for what constitutes a scheme and a tax benefit as set out below:
- "Scheme", which includes any arrangement, agreement, undertaking or course of action whether legally enforceable or otherwise; and
- "Tax benefit", which includes reductions in tax liability, VAT refund entitlements, postponement of tax liabilities and accelerated input VAT deductions.
Importantly, the Commissioner is required to issue written reasons for any GAAR determination within 30 days of making it, providing transparency and facilitating challenge through objection or appeal. Further, taxpayers may apply to the Commissioner for a private ruling in respect of complex transactions, enabling pre-transaction certainty and reducing the GAAR risks.
Expanded waiver powers for system-generated errors
Effective Date: 1 July 2026
The Commissioner is now empowered to waive penalties or interest of up to KES 2 million where the liability arose due to an error generated by an electronic tax system. This is a welcome development given the increasing digitisation of tax administration. The amendment is likely to provide relief in instances involving system-generated discrepancies, filing failures arising from technical malfunctions, and electronic invoicing errors.
New export declaration requirements
Effective Date: 1 September 2026
The Act introduces a new compliance obligation for importers, requiring any importer to obtain and retain an export declaration (or equivalent customs document issued by the competent authority of the country of export) evidencing the lawful exportation of the goods. Documents must contain prescribed particulars (including exporter and importer details, goods description, tariff classification, country of export, date of exportation and customs reference number). Importers must retain these documents for five years and produce them on request.
Where an importer fails to produce a valid export declaration or satisfactory equivalent evidence, the Commissioner may: (a) reject claims relating to the importation, value, origin, cost or ownership of the goods; (b) determine the customs value, tax liability or any claim for deduction, exemption, refund or relief on the basis of available information; and (c) impose administrative penalties. The Commissioner has discretion to waive the requirement where the country of export does not issue export declarations for the relevant goods category.
The amendment strengthens KRA's ability to verify import transactions by requiring importers to retain export declarations in addition to Certificates of Origin. While intended to enhance customs enforcement and combat undervaluation and misdeclaration, the provision imposes additional documentary and record-keeping obligations on importers and may increase scrutiny during customs audits and post-clearance reviews.
Recovery of unpaid fees and levies by the KRA
Effective Date: 1 July 2026
The Commissioner is empowered to recover unpaid amounts of fees, levies or charges collectable by the KRA under any other written law as if those amounts were unpaid tax under a tax law. Amounts not exceeding KES 100,000 may be recovered summarily.
This provision significantly expands KRA's enforcement arsenal by enabling the KRA to bring its full tax collection machinery (including garnishee orders, third-party collection notices and other TPA recovery mechanisms) to bear on statutory fees and levies collected under non-tax legislation. Persons subject to such levies should ensure compliance with payment obligations to avoid the risk of KRA deploying tax recovery procedures.
Exemption from the requirement to obtain a PIN
Effective Date: 1 July 2026
Non-residents persons opening an account with investment banks and other financial institutions are exempt from the requirement to obtain a KRA PIN. This amendment eases the administrative burden of investing in Kenya.
Penalty for failing to comply with electronic tax system
Effective Date: 1 July 2026
The Act repeals the current section 86 of the TPA which provides a penalty of twice the tax due where a person has failed to comply with electronic tax system and introduces a new penalty criteria which shall be computed based on the higher of five percent of the tax due; one hundred thousand shillings, in the case of a company; or in the case of an individual, KES 10,000.
Amendments to the Miscellaneous Fees and Levies Act, 2016
Effective date of all amendments: 1 July 2026
The Act introduces a few changes to the Miscellaneous Fees and Levies Act, 2016 (MFLA) which are set out below.
Reference to the EACCMA customs value rules when computing all miscellaneous fees and levies
The Act amends the MFLA to require application of the EACCMA provisions when determining the value of imported goods for the purposes of assessment, collection and enforcement of all miscellaneous fees set out under Part III of the MFLA.
Part III of the MFLA includes the following levies and fees: export levy, Import Declaration Fees (IDF), export and investment promotion levy, railway development levy (RDL), anti-adulteration levy, processing fees on duty free motor vehicles and duty on goods for home use from an export processing zone enterprise. This will provide clarity on the assessment value for all miscellaneous fees.
Exemption from Import Declaration Fee and Railway Development Levy
The Act introduces a new exemption from both IDF and RDL for goods imported for the construction of liquefied petroleum gas (LPG) storage tanks and related infrastructure, provided that the investment is at least KES 5 billion and has been recommended by the Cabinet Secretary responsible for energy. This incentive is targeted at encouraging large-scale investment in Kenya's LPG storage infrastructure.
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