The Finance Bill, 2026

Background

The Finance Bill, 2026, aims to amend several laws related to taxes and duties to implement new revenue-raising measures and refine existing tax frameworks. The bill covers amendments to the Income Tax Act (Cap. 470), the Value Added Tax Act (Cap. 476), the Excise Duty Act (Cap. 472), the Tax Procedures Act (Cap. 469B), the Miscellaneous Fees and Levies Act (Cap. 469C), the Stamp Duty Act (Cap. 480), and the Road Maintenance Levy Fund Act (Cap. 427). Most provisions of the Bill will come into operation on 1st July, 2026, with some specific sections (19, 20, 25, 35, 36, 37(a)(i), 59(a)(ii), 59(b)(ii), 32(a)(x) new paragraph 163) commencing on 1st January, 2027.

Key Amendments

Income Tax Act (Cap. 470):

• Definitions: Amends the definitions of "immovable property" (Section 2(1)(a)), "management or professional fee" (Section 2(1)(b)), and "royalty" (Section 2(1)(c)). The definition of "royalty" is expanded to include payments for the use of proprietary digital platforms, payment networks, payment-card schemes, and related systems. New definitions for "withdrawals" and "winnings" from licensed gambling activities are also introduced.
• Non-Resident Rental Income Tax: Inserts a new section 6B to impose a non-resident rental income tax on income derived from the use or occupation of property situated in Kenya by non-resident persons. This tax will be a final tax at a rate specified in the Third Schedule.
• Gratuity and Employee Benefits: Amends Section 5(4)(a)(c) regarding gratuities for continuous service of at least three years, provided total contributions do not exceed thirty-one percent of the basic salary.
• Scrap Metal and Winnings: Sales of scrap metal (Section 17(a)(v)) and winnings (Section 17(a)(w)) are now explicitly included in taxable income under Section 10(1).
• Trust Income: Repeals and replaces Section 11, clarifying that income received by a trustee, executor, or administrator is deemed their income, and dividends or interest included in this income are not subject to further tax.
• Loan Interest Deduction: Amends Section 15(2)(af) to allow deduction of interest not exceeding KSh 360,000 for repayment of Central Bank of Kenya loans for employee housing construction or purchase.
• Insurance Funds: Replaces "life insurance fund" with "statutory fund" in Section 19.
• Withholding Tax for Non-Residents: Amends the Third Schedule, Head B, Paragraph 3, to specify a 1.5% tax on the gross amount for the sale of scrap metal (new subparagraph (x)) and 20% for winnings (new subparagraph (y)).
• Capital Gains Tax (CGT): Amends the Eighth Schedule, Paragraph 2, to include gains derived from the alienation of shares by a non-resident person where shares derive their value from Kenya or when the alienation changes group membership or interest in property in Kenya (new subparagraph (d)).
• Non-Resident Tax Rates: Amends the Ninth Schedule to set non-resident tax rates for repatriated income by a licensee under Section 7B at 15%. Also changes the non-resident company tax rate for contractors under Section 7B from 37.5% to 30% (Section 24(b)).

Value Added Tax Act (Cap. 476):

• Definitions: Deletes definitions of "assessment", "information technology", and "tax computerized system" from Section 2(1).
• Hire Purchase Financial Charges: Amends Section 13(6)(a) to state that financial charges payable on hire purchase agreements for goods from licensed providers are not included in the taxable value of supply.
• Input Tax Adjustment for Exempt Supplies: Inserts new section 17A requiring registered persons whose taxable supplies become exempt to account for input tax on unsold supplies.
• VAT Exemption Period: Extends the period for VAT exemption for registered persons from two years to three years (Section 28).
• Tax Invoices: Amends Section 42 to clarify that an invoice showing an amount purporting to be tax should only be issued for a taxable supply and not by an unregistered person.
• Exempt and Zero-Rated Supplies: Amends the First Schedule (Part I - Goods) by adding dialyzers, scrap metal, inputs for animal feeds and pharmaceuticals, transportation of sugarcane, imported/locally purchased telephones, electric motorcycles/bicycles, solar/lithium-ion batteries, electric buses, bioethanol vapour stoves, worn clothing (other than upon importation), and goods for public private partnership infrastructure projects as exempt. It removes paragraphs 49, 58, 62, 109, and 153. Amends Part II (Services) to exempt certain financial services (excluding payment processing and money transfers by payment service providers) and tour operator services (excluding in-house supplies). Also amends the First Schedule (Part II - Exempt excisable goods) to include all parts of Chapter 88 (aircraft and spacecraft) and goods of tariff heading 8802.30.00 and 8802.40.00 and imported telephones for cellular networks and other wireless networks.

Excise Duty Act (Cap. 472):

• Definitions: Inserts a definition for "antique, vintage or classic vehicle" (Section 33) as a motor vehicle registered at least thirty years prior with a value of at least KSh 10 million.
• Cellular Phones Excise Duty: Amends Section 6 by inserting a new subsection (4A) which states that excise duty on locally purchased or imported telephones for cellular networks arises at the time of activation of the phone. The Cabinet Secretary may make regulations for its implementation (Section 6(4B)).
• Rates of Excise Duty (First Schedule): Replaces the 10% excise duty on "imported cellular phones" with 25% of the excisable value for "Telephones for cellular networks and other wireless networks" (Section 36(a)(i)). Also modifies rates or descriptions for fruit juices, alcoholic beverages (removing a proviso for small brewers), tobacco products (KSh 18,000 per kg for cigars, KSh 12,550 per kg for other manufactured tobacco), and imported articles of plastic. Introduces new excise duties of 10% for Articles of plastic (tariff heading 3923.30.00 and 3923.90.90), 5% of excisable value for Coal, and 50% of excisable value for Antique, vintage and classic vehicles. Adjusts duties on various imported items, including ceramic sinks, furniture, plastic plates, paper/paperboard, printing ink, float glass, self-adhesive plates, and polymers of ethylene.
• Virtual Asset Transactions: Introduces a 10% excise duty on fees charged for virtual asset transactions by virtual asset providers.

Tax Procedures Act (Cap. 469B):

• Virtual Assets and Service Providers: Inserts definitions for "virtual asset" and "virtual asset service provider" (Section 37(b)) consistent with the Virtual Asset Service Providers Act, 2025.
• Information Returns for Virtual Assets: Inserts a new section 6C requiring virtual asset service providers to file information returns with the Commissioner for reportable users each calendar year.
• Tax Avoidance Schemes: Inserts new section 18A empowering the Commissioner to determine tax liability as if a tax avoidance scheme had not occurred, based on various information sources.
• Reinstatement of Registration: Amends Section 10 to allow persons deregistered to apply for reinstatement if they qualify, and the Commissioner shall re-register them with their original PIN if liable for tax.
• PIN Exemption: Inserts a new subsection (5B) in Section 12, exempting non-resident persons from requiring a PIN when opening an account with an investment bank.
• Tax Amnesty: Amends Section 37E to extend the deadline for paying principal tax to qualify for amnesty on interest, penalties, or fines from December 31, 2023, to December 31, 2025, with payment of outstanding principal taxes by June 30, 2026, for full amnesty.
• Failure to Comply with Electronic Tax System: Repeals and replaces Section 86, detailing procedures and penalties for non-compliance with electronic tax invoice issuance, electronic tax returns, or electronic tax payments.
• Waiver of Penalties: Amends Section 89(5B) to allow the Commissioner to waive penalties or interest up to KSh 2,000,000 if the liability was due to an error generated by an electronic tax system.
• Prepopulated Tax Returns: Amends Section 112 to include procedures for submission of returns based on prepopulated tax returns.

Miscellaneous Fees and Levies Act (Cap. 469C):

• Import Declaration Fee (IDF): Amends Section 7(7) to change the percentage of collected fees allocated to revenue enforcement initiatives from 20% to 10%.
• Exemptions: Amends the Second Schedule (Part A) to include all parts of Chapter 88 (aircraft and spacecraft) and goods of tariff heading 8802.30.00 and 8802.40.00 and imported telephones for cellular networks and other wireless networks as exempt from Import Declaration Fee and Railway Development Levy.

Stamp Duty Act (Cap. 480):

• Real Estate Investment Trusts (REITs): Amends Section 96A to exempt from stamp duty the transfer of beneficial interest in property from one trustee to another, or from a person to a REIT for units.

Road Maintenance Levy Fund Act (Cap. 427):

• Levy Reduction: Amends Section 3(2) to reduce the amount payable into the Road Annuity Fund from three shillings to one shilling and fifty cents per litre of petroleum.

New Obligations

• Virtual Asset Service Providers: Must file information returns with the Commissioner annually regarding reportable users and transactions (Tax Procedures Act, Section 6C).
• Non-Resident Persons with Rental Income: Must register and account for the non-resident rental income tax through a simplified registration framework prescribed by the Commissioner (Income Tax Act, Section 6B).
• Importers/Manufacturers of Cellular Phones: Are liable for excise duty at the time of phone activation (Excise Duty Act, Section 6(4A)).

Penalties

• False Statements in Virtual Asset Information Returns: A person making a false statement in an information return under Section 6C(1) of the Tax Procedures Act is liable to a fine of KSh 100,000 or imprisonment not exceeding three years, or both.
• Omission of Information in Virtual Asset Returns: A penalty of KSh 100,000 for each omission in an information return.
• Failure to File Virtual Asset Returns: A virtual asset service provider failing to file an information return or a "nil" return is liable to a penalty of KSh 1,000,000 for each failure.
• Failure to Comply with Electronic Tax System: If the Commissioner determines that a taxpayer's reasons for non-compliance with electronic tax requirements (e.g., electronic invoices, returns, payments) are unsatisfactory, the taxpayer is liable to a penalty of two times the value of the tax due (Tax Procedures Act, Section 86).
• Waiver Limit: The Commissioner may waive penalties or interest up to KSh 2,000,000 if the liability was due to an error generated by an electronic tax system (Tax Procedures Act, Section 89(5B)).

Transitional Provisions

• General Commencement: Most sections of the Act will come into operation on 1st July, 2026.
• Specific Commencement: Sections 19, 20, 25, 35, 36, 37(a)(i), 59(a)(ii), 59(b)(ii), 32(a)(x) new paragraph 163 will come into operation on 1st January, 2027.
• Tax Amnesty Extension: The tax amnesty period for payment of principal tax to qualify for waiver of penalties/interest is extended to 31st December, 2025, provided outstanding principal taxes are paid by 30th June, 2026 (Tax Procedures Act, Section 37E).
• Investment Allowance for Spectrum License: For spectrum licenses purchased or acquired before 1st July, 2025, the deduction is restricted to the unamortized portion over the remaining useful life, at 10% per year (Income Tax Act, Second Schedule).
• Exemption for Spare Parts: Any exemption granted for spare parts before 30th June, 2026, shall apply until the conclusion of the project (VAT Act, First Schedule, Paragraph 51).