By The Weekly Vision Business Desk
Kenya’s Finance Act, 2026 came into effect on 1 July, ushering in sweeping tax administration reforms that are expected to reshape how businesses comply with tax laws while helping the Kenya Revenue Authority (KRA) raise an additional KSh98.6 billion during the 2026/27 financial year.
Although President William Ruto’s administration has described the legislation as a tax administration measure rather than a tax increase, business organisations and tax experts say the cumulative effect will be higher compliance costs and tighter enforcement across several sectors of the economy.
Unlike previous Finance Acts, which focused largely on increasing tax rates, the 2026 law broadens the tax base, strengthens enforcement and expands the categories of taxable transactions, particularly in digital payments, rental income and the informal economy.
Among the most significant changes is an expanded definition of “royalty” under the Income Tax Act. The amendment now expressly covers payments for proprietary card networks and payment platforms, including transaction, processing, network and assessment fees. The change effectively overturns the Supreme Court’s 2025 decision in the Barclays Bank (now Absa Bank Kenya) v Kenya Revenue Authority case, which had ruled that such payments were not subject to withholding tax.
At the same time, payment processing, merchant acquiring, payment gateway and aggregation services delivered through software platforms have lost their VAT exemption and now attract the standard 16 per cent VAT rate. The National Treasury has clarified that core mobile money services, including products such as M-Pesa’s Fuliza and M-Shwari, which operate through banking partnerships, are expected to remain VAT exempt. However, fintech companies, e-commerce businesses and merchants relying on card payment infrastructure are likely to experience higher operating costs.
The Act introduces pre-populated tax returns, allowing the KRA to generate tax returns using information collected from payroll systems and the electronic Tax Invoice Management System (eTIMS).
Before doing so, the Authority must notify taxpayers of their obligation to file returns by the new 31 January deadline. The reform significantly strengthens the role of eTIMS, meaning businesses with incomplete or inaccurate records face a greater risk of tax assessments based on data already available to the KRA. Resident landlords will now pay Monthly Rental Income Tax at 10 per cent of gross rental income, up from 7.5 per cent.
Non-resident landlords must register under a simplified tax system, file monthly returns and remit taxes by the 20th day of the following month. Kenyan property managers and agents collecting rent on their behalf will now serve as withholding tax agents.
The Finance Act also introduces incentives for the real estate sector. Transfers of property into Real Estate Investment Trusts (REITs) registered with the Commissioner of Domestic Taxes are now exempt from both Capital Gains Tax and Stamp Duty.
Industry stakeholders argue the exemption is designed to encourage investment and improve liquidity in the property market, although some civil society organisations contend that the measure disproportionately benefits large property owners.
Meanwhile, non-resident companies operating in the extractive and petroleum sectors will see their corporate income tax reduced from 37.5 per cent to 30 per cent, bringing it into line with the standard corporate rate.
However, a new 15 per cent tax on repatriated income for non-resident licence holders and contractors will apply from 1 January 2027, alongside a shortened corporate tax filing deadline and new excise duty measures affecting mobile phones. Business organisations have welcomed the withdrawal of several controversial proposals that appeared in the original Finance Bill but continue to express concern over the broader compliance burden.
The Kenya Association of Manufacturers (KAM) warned that changing key industrial inputs from zero-rated to VAT-exempt status will increase production costs because manufacturers will no longer be able to recover input VAT.
The Kenya Private Sector Alliance (KEPSA) also cautioned that some of the Bill’s original proposals, including powers allowing the KRA to freeze bank accounts while tax disputes were under appeal, would have undermined cash flow and due process. Those provisions were ultimately dropped before the Act was passed.
Tax advisory firm Bowmans has also warned that the new withholding tax obligations on card transaction fees could significantly increase administrative costs, particularly for smaller businesses, while expanded KRA powers to reclassify transactions may lead to more tax disputes.
The Act introduces a mandatory export declaration regime from 1 September 2026. Importers will be required to obtain and retain export declarations or equivalent customs documentation from the country of export for at least five years. Failure to produce the required documents could result in the KRA rejecting declared customs values or imposing penalties.
The Government has also extended the tax amnesty on penalties and interest for liabilities incurred up to 31 December 2025, provided the principal tax is paid by 31 December 2026.
The Finance Act comes shortly after President Ruto signed the Sovereign Wealth Fund Act into law on 8 July 2026. The Kenya Sovereign Wealth Fund is expected to begin operations with an estimated KSh200 billion generated from petroleum revenues, mining royalties and proceeds from the disposal of selected State interests.
The fund will comprise three components: a Stabilisation Fund to cushion the economy during revenue shocks, a Strategic Infrastructure Investment Fund to finance development projects, and a Future Generations Fund, which will receive at least 30 per cent of all resources and cannot be used as collateral or borrowed against.
The legislation also prohibits withdrawals from the fund within three months of a General Election unless approved by the board, Parliament and the Auditor-General. Tax advisers are urging businesses to strengthen their tax compliance systems ahead of tighter enforcement.
Priority areas include ensuring full eTIMS compliance, reviewing contracts involving digital payment platforms and card transactions, taking advantage of the tax amnesty before it expires, and assessing whether REIT structures could offer tax efficiencies for larger property portfolios.
For companies with December financial year-ends, the shortened corporate tax filing deadline will first apply to returns due in 2027, giving businesses time to adjust their accounting and audit processes.
Overall, the Finance Act 2026 marks a shift away from headline tax increases towards stricter enforcement, broader taxation of the digital economy and greater reliance on technology-driven compliance. While relatively few tax rates have changed, the legislation is expected to significantly increase compliance obligations for businesses operating in Kenya.
