Introduction
The highlights contained herein are based on a copy of the Finance Bill, 2026 (the Bill) that is in general circulation. These views are provisional and subject to confirmation from the official copy of the Bill that will be presented to the National Assembly of the Republic of Kenya.
Generally, the proposals aim at broadening the tax base by, for instance, targeting the informal sector through the introduction of presumptive tax on the ‘mitumba’ sector. There is also a move to tighten the compliance and enforcement gaps by introducing shorter timelines for filing and computation of timelines for objections and appeals.
Some of the proposals in the Bill are welcome such as the clarification of taxation of trust income while some are punitive such as removal of rebates for affordable housing developers.
We highlight the key changes that are proposed in the Bill below:
INCOME TAX ACT
Removal of the 15% corporate income tax rate for affordable housing developers
The Bill proposes to delete the provision that provides for a reduced corporate income tax rate of 15% for companies that construct at least one hundred (100) residential units annually. The current Income Tax Act grants a reduced corporate income tax rate of 15% to companies undertaking affordable housing projects constructing at least one hundred (100) residential units per year, subject to approval by the Cabinet Secretary.
Implications
This proposal means that qualifying developers are likely to revert to the standard corporate income tax rate (currently 30% for resident companies). This will materially impact the economics of affordable housing projects by increasing the effective tax burden and reducing the post-tax returns for the developers. Developers may consider structuring options, including the use of REITs or other tax-efficient vehicles. The removal may also slow private sector participation in the housing sector unless alternative incentives are introduced.
Introduction of withholding tax on card-related fees
The Bill proposes to introduce withholding tax on interchange fees, merchant service fees, and payments to card companies which seems to be a response to the decision of the Supreme Court that such fees are not subject to withholding tax under the current framework.
Implications
This expands the withholding tax base to include payments within the card payment ecosystem. Financial institutions and businesses will face increased compliance obligations, including withholding, remittance, and reporting requirements.
Amendment of filing deadlines for income tax returns
The Bill proposes to reduce the deadline for filing income tax returns for both individuals and companies from six (6) months to four (4) months after the end of the year of income. Nil returns will be due within one (1) month after the end of the year of income.
Implications
This significantly shortens compliance timelines and requires earlier preparation of financial statements and tax computations. Taxpayers may face increased pressure on audit and reporting processes, with a higher risk of penalties for late filing.
Introduction of tax on importation of second-hand clothing
The Bill proposes to introduce a tax on income derived from the importation of second-hand clothing and similar items at an implied effective rate of 1.5% of the customs value.
Implications
This introduces a presumptive tax regime targeting the second-hand goods sector and shifts tax collection to the point of importation. While simplifying compliance, it may increase the cost of imported goods.
Increase in monthly rental income tax rate
The Bill proposes to increase the tax rate applicable to monthly rental income from 7.5% to 10%.
Implications
This increases the tax burden on landlords operating under the simplified rental income tax regime. It may reduce net rental yields and could lead to upward pressure on rental prices.
VALUE ADDED TAX ACT
Introduction of VAT on digital and platform-based financial services
The Bill proposes to impose VAT on digital and platform-based financial services such as money transfer services, payment processing services, settlement services, merchant acquisition services, payment gateway services or aggregation services supplied over a software or platform for a fee or commission paid to the payment service provider.
Implications
This expands the VAT base into the digital financial services sector, which has historically enjoyed exemptions. The proposal may increase the cost of accessing digital financial services and could impact financial inclusion.
Adjustment of input VAT on unsold supplies upon change of rate
The Bill proposes to allow the Commissioner to adjust or recover input VAT claimed on unsold supplies where there is a change in the applicable VAT rate.
Implications
This ensures that input VAT claims reflect the correct tax position following rate changes. Businesses will need to carefully track inventory and VAT positions to ensure compliance.
TAX PROCEDURES ACT
Introduction of tax amnesty
The Bill proposes to introduce a tax amnesty for liabilities relating to periods up to 31st December 2025, with the amnesty expiring on 31st December 2026.
Implications
This proposal provides taxpayers with an opportunity to regularise historical tax liabilities without incurring penalties and interest.
It is likely to encourage voluntary compliance and improve revenue collection in the short term.
Computation of timelines for objections and appeals
The Bill proposes to revise the computation of timelines for objections and appeals by shifting from working days to calendar days.
Implications
This change effectively shortens the time available to taxpayers to respond to assessments and lodge appeals. Taxpayers will need to act more promptly in managing disputes, as the risk of missing statutory deadlines will increase.
Commissioner’s power to recover input VAT
The Bill proposes to grant the KRA the power to recover input VAT claimed where such claims are subsequently found to be invalid or unsupported.
Implications
This strengthens enforcement powers and may lead to increased scrutiny of input VAT claims. Taxpayers will need to maintain robust documentation and ensure strict compliance with input VAT requirements to mitigate exposure to reassessments and recoveries.
Exemption of non-residents from PIN requirement
The Bill proposes to exempt non-residents from the requirement to obtain a Personal Identification Number (PIN) when opening an account with an investment bank.
Implications
This measure simplifies onboarding processes for non-resident investors and may enhance the attractiveness of Kenya’s capital markets. It also reduces administrative barriers for foreign investment.
EXCISE DUTY ACT
Cross-referencing definitions of virtual assets and virtual asset service providers
The Bill proposes to align the definitions of “virtual asset” and “virtual asset service provider” with those provided under the Virtual Asset Service Providers Act, 2025.
Implications
This amendment clarifies the scope of excise duty on virtual asset transactions by incorporating established statutory definitions. This ensures that there is certainty in the application of excise duty to virtual asset service providers.
STAMP DUTY
Exemption from stamp duty on transfer of property to REITs
The Bill proposes to exempt from stamp duty any instrument that conveys or transfers a beneficial interest in property to a real estate investment trust (REIT) authorized under the Capital Markets Act, subject to the REIT being registered with the KRA.
Implications
This proposal expands the exemption to cover all transfers of beneficial interests in property to REITs without a time limitation. Currently, stamp duty exemptions apply only to particular transfers such as transfers between trustees.
The proposal may incentivize the growth of REITs in Kenya.
Written By:
Beatrice Njeri
Partner – Tax & Accounting
Eddah Nyameya
Tax & Accounting Associate
