Finance Act 2026: What the New Tax Law Means for Your Business

The President signed the Finance Act, 2026 into law on 26 June 2026. Most changes start on 1 July 2026. Some provisions for filing deadlines and the extractive sector start on 1 January 2027.

The Act changes many tax laws in Kenya. These laws include Income Tax, VAT, Excise Duty, and Tax Procedures. It also changes Miscellaneous Fees, Levies, and Stamp Duty. These changes affect your costs, contracts, and compliance calendar.

In this guide, Njane & Company walks you through what actually became law. They discuss what was thrown out and what it means for your business. This guide also explains what to do before the deadlines start biting. It is a long read, deliberately. Bookmark it, share it with your finance team, and jump to the sections that touch your business using the outline below.

• How we got here: from Bill to Act
• What Parliament dropped, and why it matters
• The tax amnesty extension: the single biggest opportunity in the Act
• Withholding tax reaches card payments and digital platforms
• Relief for lenders: bad debts finally include the principal
• Big-ticket investment incentives
• Employment taxes: gratuity clarity and pension relief
• New compliance deadlines and stronger KRA powers
• VAT: outsourcing relief, fintech pain, and schedule reshuffles
• Excise duty: protection for local industry, higher costs for imports
• Sector-by-sector: where the Act lands hardest
• Key dates at a glance
• Frequently asked questions
• Your action checklist

How we got here: from Bill to Act

Every year the Finance Bill arrives with proposals, and every year public participation reshapes it before it becomes law. The 2026 cycle followed that familiar arc. The Bill as published contained several measures that drew strong objections from professional bodies, business associations and ordinary taxpayers during the public participation window. Parliament’s committees heard those submissions, and a number of the most contested proposals were removed or softened before the final vote.

This process is important for how you read the Act. Some early proposals in the Bill did not become law. Others changed. You must use the Act as it is now. Do not use early reports about the Bill.

One structural point worth understanding before we get into the detail: a Finance Act is not a single new tax law. It is a bundle of amendments to the existing tax statutes. So when we say “the Act changes VAT treatment of payment services,” what has actually happened is that the VAT Act’s schedules and definitions have been amended. Your obligations still live in the underlying statutes; the Finance Act simply rewrote parts of them. This is also why different provisions can have different commencement dates. Each amendment carries its own effective date. In 2026 the two dates that matter are 1 July 2026 for most changes and 1 January 2027 for the filing-deadline and extractive-sector provisions.

First, the good news: what Parliament dropped

Public participation worked on several fronts. The following proposals from the Finance Bill did not make it into the Act:

• The “pay to play” dispute ruleYou do not have to deposit disputed tax before you start an appeal.
• The deemed dividend provisionThe government removed a rule that would have treated some company transactions as taxable dividends.
• 25% excise duty on phonesParliament rejected the 25% duty on imported mobile phones. The rate remains 10%. The government also dropped the plan to tax phones at activation.
• Excise duty on coalthe proposed 5% duty did not pass, a relief for energy-intensive manufacturers.
• Weekend-inclusive deadlinesobjection and appeal timelines will continue to exclude Saturdays, Sundays and public holidays.

Each of these deserves a word, because knowing what you escaped tells you what to watch for in future Bills.

The “pay to play” proposal concerned our clients. It would have forced taxpayers to deposit disputed tax to start an appeal. This would make the right to appeal only for people with money. Its removal protects taxpayers. You can object and appeal without paying the disputed amount first.

The deemed dividend provision would have introduced uncertainty into ordinary corporate transactions by treating certain of them as taxable distributions to shareholders. Group companies, especially those with intercompany balances and shared services, would have faced real difficulty predicting the tax effect of routine arrangements. Its removal keeps the dividend rules as you know them.

The excise proposals on phones and coal were both cost-of-living and cost-of-production issues. A 25% duty on imported phones would have priced basic smartphones out of reach for many households. It would have slowed the digital-inclusion agenda that other parts of government policy promote. The coal duty would have raised production costs for cement, steel and other energy-intensive manufacturers. It would have done this at the moment the Act is trying to protect local industry. Parliament saw the contradiction and dropped both.

The proposal to make deadlines include weekends and public holidays is important. Two weekend days in a 30-day period are not small. The existing rules stay. Saturdays, Sundays, and public holidays do not count in your objection and appeal periods.

One notable disappointment: the Act does not touch the PAYE tax bands. Employees hoping for relief on their monthly payslips will have to keep waiting. If your staff ask what the Finance Act means for their net pay, the honest answer is: directly, almost nothing. The employment-tax changes in the Act concern gratuity and pensions rather than the monthly PAYE computation.

The headline item: the tax amnesty is extended

Our guide on the KRA tax amnesty confirms the changes. The Act extends the amnesty to tax debts up to 31 December 2025. You must pay the principal tax by 31 December 2026. KRA will then waive the penalties, interest, and fines.

It is worth being precise about what this means, because we still meet business owners who assume the amnesty forgives the tax itself. It does not. The structure is: you pay the principal, KRA waives what the principal attractedthe penalties, the interest that has been compounding on the ledger, the fines. For old debts, those add-ons frequently rival or exceed the principal itself. That is why the amnesty is so valuable. A debt that looks unpayable on your iTax ledger often shrinks to something entirely manageable once you strip it back to principal.

Practically, here is how we recommend approaching it between now and December:

1. Pull your ledger now. Download your iTax statements for every tax head. Check corporation tax, income tax, VAT, PAYE, and withholding tax. Identify what KRA records say you owe for each period.
2. Reconcile before you pay. Ledger errors are common: payments posted to the wrong period, returns captured twice, credits never applied. Settle the reconciliation first so you pay the correct principal, not an inflated one.
3. Separate principal from penalties and interest. The amnesty turns on the principal for periods up to 31 December 2025. Knowing the split tells you the real cost of coming clean.
4. Plan the cash. You must pay the balance before 31 December 2026. You can pay in parts during these months. You must settle the total amount by this date.
5. Keep the evidence. Payment slips, ledger printouts and correspondence. If a waiver ever needs to be demonstrated later, you want a clean paper trail.

If your business is carrying old KRA balances, this remains the single most valuable opportunity in the entire Act. Deadlines like this have a way of arriving suddenly, and December is closer than it feels. Do not let the year run out on it.

Withholding tax reaches card payments and digital platforms

Two definition changes quietly expand the withholding tax net in a way that will matter to banks, fintechs, merchants and anyone paying international card schemes:

• Management and professional fees now expressly include interchange fees and merchant service fees arising from card transactions. This reverses the position the courts had reached and brings these payments into withholding tax.
• Royalties include payments for the use of proprietary digital payment card networks or platforms. This applies regardless of the name of the charge. Examples are service fees, network fees or processing fees.

Withholding tax mechanics explain why this is important. When a payment is in the withholding net, the payer must deduct tax. The payer must deduct the tax at the correct rate. The payer must send the tax to KRA. The payer has the duty and the risk for errors. Kenyan banks, payment processors and merchants must now identify these payments. They must apply the deduction and send it to KRA.

The commercial effect then depends on the contract. Many agreements with international networks and platforms contain gross-up clauses. The provider must receive its fee net of any local taxes. Any withholding tax becomes an additional cost to the Kenyan payer. It is not a deduction borne by the foreign recipient. To make it concrete: if a contract entitles a network to a fee of 100 net of taxes and a withholding rate of 15% applies, the payer must gross the payment up to roughly 117.6. After deducting 15% the network still receives its 100. The extra 17.6 is the payer’s own cost. Multiply that across the volume of card transactions in a year and the numbers become material quickly.

Note the royalty definition. It applies to proprietary payment networks and platforms however the charge is labelled. Renaming an interchange fee to a technology access charge does not change the result. If you pay to use a proprietary card network, KRA will tax it.

Importantly, Parliament narrowed the royalty definition before passing it: ordinary payments for software bought through a distributor are excluded. If you resell or acquire software through normal distribution channels, you are not suddenly paying withholding tax on it. This was a genuine concern under the Bill’s original wording. The carve-out spares the ordinary software supply chain from a compliance burden that was never the target.

What to do: If your business pays card networks or payment platforms, expect higher costs. Review your contracts now. Identify all payments that fall within the new definitions. Check for gross-up language in each contract. Calculate the cost and decide who will pay it. If you negotiate new agreements, include the withholding tax in the negotiation.

Relief for lenders: bad debts finally include the principal

For banks, microfinance institutions and licensed money lenders, the Act ends a dispute with KRA. When a loan is bad according to Commissioner guidelines, the deductible bad debt now includes the loan principal. It does not only include the interest.

The old dispute was this: KRA treated only the unpaid interest as a deductible bad debt. KRA stated that the interest was the income of the lender. For a lender, this misses the commercial reality. Money is the stock-in-trade of the lender. When a loan fails, the loss is the whole unrecovered amount. It is not only the interest. A trader deducts the cost of lost inventory. A lender now does the same. The Act aligns the law with commercial reality. For institutions with many non-performing loans, the difference in taxable profit can be large.

You must follow the discipline requirements. The deduction is available when a debt is bad in line with the Commissioner’s guidelines. Your file must show the full history. Show recovery efforts, results, internal approvals and committee documentation. A journal entry alone is not sufficient. Lenders must review write-off policies to meet the guidelines.

Big-ticket investment incentives

The Act is generous to large capital projects:

• Pre-2025 tax losses preserved. Investors who put at least KES 10 billion into Kenya before 1 July 2025 can carry tax losses forward indefinitely until they are fully used.
• 100% first-year investment allowance for capital expenditure above KES 10 billion on petroleum or gas storage facilities.
• VAT exemptions apply to goods for PPP infrastructure projects. This also applies to projects funded by the National Infrastructure Fund. It applies to plant and machinery for projects worth at least KES 3 billion. It also applies to LPG storage infrastructure worth at least KES 5 billion.
• Extractive sector rates cutFrom 1 January 2027, the tax rate for non-resident contractors in mining and petroleum drops from 37.5% to 30%. There is a new 15% tax on repatriated income.

Kenya wants to attract large capital. This is true for energy, infrastructure, and extractives. Kenya will accept lower short-term revenue to attract this investment. These rules do not apply to most small and medium businesses on a return. They matter in two indirect ways. First, if you supply or subcontract to large infrastructure and energy projects, VAT exemptions change the contract prices. You must understand the VAT treatment before you quote. Second, the indefinite loss carry-forward for large pre-2025 investors shows how the incentive landscape changes. If you plan large capital expenditure, get advice on your structure early. The requirements in these rules are precise.

One step in the other direction: the preferential 5% withholding tax on dividends paid to citizens of East African Community partner states is gone. Those dividends now attract the standard non-resident rate of 15%. If your shareholder register includes EAC-resident individuals, your dividend planning and the net amounts they receive change from this year. A distribution that previously suffered 5 in withholding on every 100 now suffers 15. Any shareholder communications or dividend policies built on the old rate need updating.

Employment taxes: gratuity clarity and pension relief

• Gratuity paid at the end of a contract is tax exempt if the contract lasts for at least three years. The gratuity must not be more than 31% of the employee’s earnings for the contract period.
• Pension benefits paid on the death of a member are now exempt from tax, welcome relief for dependants at the hardest possible time.
• Non-resident aviation staff who work for the Kenya designated national carrier pay tax only on income from duties in Kenya.

The gratuity change deserves unpacking, because contract-plus-gratuity is a common structure in Kenya, particularly in the public sector, in projects and in fixed-term professional engagements. Until now, the tax treatment of end-of-contract gratuities generated recurring uncertainty. The Act now draws a clear line with two conditions, and both must be met:

1. Duration: the contract, counting renewals, ran for at least three years. A two-year contract renewed for two more years qualifies on duration; an 18-month engagement does not, however generous the gratuity.
2. Size: The gratuity must not be more than 31% of the employee’s earnings. For example, an employee earns KES 200,000 each month for three years. Total earnings are KES 7.2 million. The limit is KES 2,232,000. A gratuity below this limit is correct. A gratuity above this limit is taxable.

Employers must review contract templates and gratuity formulas now. If contracts are less than three years, or if gratuities exceed the limit, tell the employees. Do this before the payment date to set the correct expectations.

The death-in-service pension exemption is important for HR. If a member dies, the pension benefits are now tax exempt. Payroll and pension administrators must update their processes to stop incorrect tax deductions.

New compliance deadlines and stronger KRA powers

The Tax Procedures Act changes are where most businesses will feel the Act day to day:

• Fixed filing deadlines from 1 January 2027Individuals must file by the end of the fourth month after their year of income. Companies must file by the end of the sixth month after their period. Returns by notice are due within four months. Update your calendar now.
• Pre-populated returnsKRA will formally issue pre-filled tax returns by the end of January each year, and you get a two-month window to review, amend or confirm them. Responsibility for accuracy stays with you, so review carefully rather than clicking accept.
• KRA can originate assessmentsThe Commissioner can raise an assessment from system data. KRA must ask for information in writing 30 days before the assessment. You can still object to an assessment.
• A general anti-avoidance rule is now in the Tax Procedures Act. KRA can reassess you if you made arrangements only to get a tax benefit. The Commissioner must give reasons in writing within 30 days. Taxpayers can request private rulings for complex transactions.
• Electronic tax system (eTIMS) penalties are new. The penalty is 5% of tax due or KES 100,000 for companies. For individuals, it is KES 10,000. KRA can waive penalties from system errors up to KES 2 million.
• Importers must keep export declarations from the country of origin for at least five years. If you do not, KRA may reject your claims and assess your liabilities.
• Crypto reporting arrivesVirtual asset providers must file annual returns on their users. Kenya can now share this information with other countries. If you trade digital assets, expect KRA visibility.

Taken together, these provisions describe where tax administration in Kenya is heading: KRA increasingly works from data it already haseTIMS invoices, third-party reports, system records, information exchanged with other tax authorities, rather than waiting for what you choose to file. Three of the changes deserve a closer look.

Pre-populated returns will change your January. From the moment KRA starts issuing pre-filled returns at the end of January each year, the review window becomes a recurring compliance event. You have two months to check what KRA thinks your numbers are, correct what is wrong, and confirm. The danger is psychological. A pre-filled return looks authoritative, and a busy finance team will be tempted to accept it. But the Act is explicit that responsibility for accuracy stays with the taxpayer. If the pre-filled figures understate your income and you confirm them, that is your error. If they overstate it and you confirm, you have overpaid with your own signature on it. Treat the pre-populated return as KRA’s opening position, reconcile it to your records, and only then confirm.

KRA-originated assessments shift the burden of readiness. Historically, an assessment followed your return or your failure to file. Now the Commissioner can raise an assessment from system and third-party data. KRA must write to you to ask for more information at least 30 days before assessing. You keep your objection rights. Treat any KRA information request as the start of a formal process. Respond within the window. Respond with documents, not just statements. If you disagree with an assessment, you can object without paying the disputed amount first.

The general anti-avoidance rule reaches substance, not labels. KRA can reassess arrangements that only exist to get a tax benefit. The Commissioner must give written reasons within 30 days. Use the private ruling option for complex transactions. Keep documentation of the commercial reasons for your transactions.

The eTIMS penalties create a large risk for companies. The minimum penalty is KES 100,000 for each event. This penalty applies regardless of the tax amount. This makes invoice system control an important task for managers in high-volume businesses. The KRA can waive penalties up to KES 2 million if system errors cause the breach. If a system error occurs, document the event. Save screenshots, error messages, and timestamps. This evidence helps you to get a waiver for a penalty.

On import documentation, the five-year retention requirement for export declarations from the country of origin is easy to state and easy to fail. The declaration must be obtained at import time. Reconstructing it years later, from a supplier who may no longer exist, is exactly the scenario the provision punishes. Build the document into your import checklist now, alongside the invoice and bill of lading. File it where a five-year-old shipment can be found in minutes.

VAT: outsourcing relief, fintech pain, and schedule reshuffles

Three VAT changes stand out for ordinary businesses:

• Labour outsourcing gets a sensible fix. If a staffing firm pays employee costs for a client, those costs are now disbursements. VAT applies only to the service fee. VAT does not apply to the total payroll amount. This ends the practice of taxing the full amount. If you use an outsourcing arrangement, change your prices. Get advice on tax exposure for the time before July 2026.
• Payment services become taxable. Payment processing, settlement, merchant acquiring, gateway, and aggregation services are no longer in the financial services exemption. Core money transfer is still exempt. However, fintechs and payment intermediaries are now in the VAT net. Some of this cost will flow to merchants and consumers.
• VAT refunds on bad debts revert to a three-year waiting period (up from two), delaying cash recovery on unpaid invoices. Tighten your credit control accordingly.

The outsourcing fix is best seen with numbers. Suppose a staffing firm runs a client’s warehouse team: monthly payroll and statutory costs of KES 4,000,000, plus a management fee of KES 400,000. Under the court-driven position the Act reverses, VAT risked applying to the full KES 4.4 million flowing through the arrangement. Under the Act, the payroll is a disbursement and VAT applies to the KES 400,000 fee only. The difference in VAT charged is dramatic. It removes the absurdity of taxing salaries as if they were the outsourcing firm’s own service revenue. Two follow-ups matter. First, contracts and invoices should now be structured to show the disbursement and the fee separately. This is necessary because the relief follows the substance and the paperwork. Second, the change is prospective. If your arrangement was exposed for periods before July 2026 under the old court position, that exposure does not vanish. It is worth taking advice on how to manage it.

The payment services change is the other side of the fintech coin from the withholding tax expansion. They represent a decisive move to tax the payments value chain. What is carved out of the financial-services exemption is specific. It includes payment processing, settlement, merchant acquiring, gateway and aggregation services supplied for a fee. What stays exempt is core money transfer. For fintechs, the immediate work is classification. Go through the product list and determine which side of that line each one falls on. This must be followed by systems work. This includes VAT on invoices, returns and input-tax recovery on newly taxable supply lines. It also includes pricing decisions about how much of the new cost to pass on. For merchants who consume these services, expect the pass-through to appear in your acquiring and gateway fees. Factor it into your margins.

The bad-debt refund change is a quiet cash-flow hit. When a customer never pays a VAT invoice, you have remitted output VAT on money you never received. The refund mechanism eventually gives it back. Moving the waiting period from two years to three means that recovery now sits a year further away. The rational response is at the front of the pipeline, not the back. Tighten credit vetting, shorten payment terms where you can, and chase aged receivables before they harden into bad debts whose VAT is locked up for three years.

Dialyzers, scrap metal, and infrastructure items are now exempt. Pharmaceutical inputs and bioethanol stoves move from zero-rated to exempt. You cannot recover input VAT for exempt goods. Goods for aviation, tourism construction, and housing schemes lose their exemptions. Travellers get one benefit: the duty-free limit for personal baggage increases from USD 300 to USD 2,000.

The zero-rated-to-exempt moves deserve a moment, because the distinction confuses even experienced businesspeople. Zero-rated means you charge VAT at 0% and still recover the input VAT on your costs; exempt means you charge no VAT but recover nothing. So when pharmaceutical manufacturing inputs move from zero-rated to exempt, manufacturers lose input-VAT recovery on those lines. That unrecoverable VAT becomes a cost that flows into medicine prices. The same logic applies to bioethanol cooking stoves. Meanwhile, sectors that lost exemptions outright, aviation goods other than helicopters, tourism facility construction, affordable housing scheme inputs, face VAT where there was none. This changes the arithmetic of projects that were costed before July 2026. If you have live contracts in these sectors, review the tax clauses now to establish who bears the change.

There is a new claw-back rule. If your taxable stock becomes exempt and you have not sold it, you must repay the input VAT. You must repay this in the month of the change. Businesses must calculate this amount for all reclassified items. Recognize this cost in the correct month to avoid problems during an audit.

Excise duty: protection for local industry, higher costs for imports

The excise changes follow a clear pattern, tax imports harder, protect local manufacturing:

• Imported sugar: duty jumps from KES 7.50 to KES 40 per kg. Manufacturers who rely on imported sugar should model this into pricing immediately.
• Imported timber products (MDF, particle board, block board, plywood, timber): new 30% duty.
• Imported sanitary fittings such as shower heads: 35%.
• Banner and PVC sheeting: KES 200 per kg or 35%, whichever is higher, a cost increase for advertising and packaging.
• Sweetened juices: a new two-tier structure, KES 20 per litre with added sugar versus KES 14.14 without, nudging manufacturers to reformulate.
• Bottled water: excise duty is removed. Drinking water is now an essential item.
• Extra neutral alcohol duty for beverage makers drops from KES 500 to KES 80 per litre. Tobacco rates increase. Smokeless tobacco (snus) is now taxed at KES 2,000 per kg.
• Antique and classic vehicles (30+ years old, worth KES 10 million or more): a new 50% excise duty.
• Betting and gaming: the excise base now includes any value for betting. The 20% withholding tax on winnings is now in effect.

Run the sugar arithmetic to feel the scale: at KES 40 per kg, a bakery or beverage maker importing 100 tonnes of sugar a year now carries KES 4,000,000 in excise on that input. This is against KES 750,000 before. It is a fivefold increase that must be found in margin, price or a switch to local supply. That last option is, of course, the point. The duty is designed to pull demand toward Kenyan sugar. Whether local supply can meet that demand at competitive prices is the question every affected manufacturer should be modelling now, alongside the pricing decision.

The timber and fittings duties affect construction and furniture. Imported MDF, particle board, plywood and timber have a 30% duty. Sanitary fittings have a 35% duty. These taxes increase building costs. Affordable housing inputs no longer have a VAT exemption. Developers with contracts signed before July 2026 must review tax clauses. Price new work with the new rates from the start.

The sweetened juice tiers use tax to improve health. The duty is KES 20 per litre for drinks with added sugar. The duty is KES 14.14 per litre for drinks without added sugar. This change encourages manufacturers to remove sugar. Beverage makers save nearly KES 6 per litre if they remove added sugar. This money helps to pay for new products. Excise on bottled water is now zero because water is an essential item.

The extra neutral alcohol cut, from KES 500 to KES 80 per litre for licensed manufacturers, is one of the most commercially significant lines in the Act for the beverage industry. ENA is the base input for spirits. The old rate was a heavy burden on legitimate producers competing against illicit alternatives that paid no duty at all. Cutting the input duty by more than four-fifths transforms the production economics for licensed players. It narrows the price gap that illicit product exploited. Note the qualifier: the rate applies to licensed manufacturers, which makes licensing status itself a major commercial asset.

For betting and gaming operators, the base broadening is a definitional trap to take seriously: excise now attaches to any value made available for betting purposes, not just wallet deposits. Bonuses, promotional credits and other mechanisms by which a punter gets value to stake are within the net’s intent. Product teams should involve tax advice when designing promotions. Punters, meanwhile, will feel the return of the 20% withholding tax on winnings directly.

Sector-by-sector: where the Act lands hardest

Different businesses have different experiences with this Act. This list shows the changes for the sectors we advise. See the sections above for more details.

Manufacturers. Input costs change in many ways. Excise on imported sugar increases more than five times. Pharmaceutical inputs no longer allow VAT recovery. There is no coal duty. Local production has continued protection. Model your input costs with the new rates. Check if the stock rule affects your warehouse.

Importers and retailers. New excise applies to timber, sanitary fittings and banner sheeting. Keep export declarations for five years. There is a claw-back on unsold stock that now has a VAT exemption. Build export declarations into your import checklist now.

Fintechs and payment businesses. The hardest-hit sector in the Act. Payment processing, settlement, acquiring, gateway and aggregation services enter the VAT net. Withholding tax expands to interchange fees, merchant service fees and payments for proprietary payment networks and platforms. Classification, systems, contracts and pricing all need work this quarter.

Banks and lenders. The bad-debt deduction now expressly includes loan principal, a significant win; the same institutions face the withholding changes on card-scheme payments. Review write-off documentation against the Commissioner’s guidelines to secure the new deduction.

Employers. Gratuity exemption clarified (three-year contracts, 31% ceiling); death-in-service pension benefits exempt; PAYE bands unchanged. Update contract templates, gratuity formulas and payroll processes.

Construction and real estate. Higher excise on imported timber and fittings, lost VAT exemptions for tourism facility construction and affordable housing inputs, offset by new exemptions for large infrastructure and PPP projects. Reprice pipelines and review tax clauses in live contracts.

Outsourcing and staffing firms, and their clients. The VAT disbursement fix changes the pricing of every labour outsourcing arrangement in the country. Restructure invoices to separate payroll disbursements from service fees, and take advice on pre-July 2026 exposure.

Betting and gaming operators. Broader excise base covering any value made available for betting, and the returned 20% withholding on winnings. Promotion design is now a tax question.

Digital asset businesses. Annual information returns on users, with international exchange of that information. Build reporting capability now; assume visibility.

Large investors. Indefinite loss carry-forward for pre-2025 investments of KES 10 billion or more, 100% first-year allowance for major petroleum and gas storage capex, VAT exemptions for qualifying infrastructure, and lower extractive-sector rates from 2027. Structuring advice pays for itself at these thresholds.

Key dates at a glance

• 26 June 2026Finance Act, 2026 signed into law.
• 1 July 2026Main commencement date: withholding tax expansion, VAT changes, excise changes, gratuity and pension exemptions, amnesty extension all in force.
• 31 December 2026Deadline to pay principal tax under the extended amnesty for periods up to 31 December 2025.
• 1 January 2027Fixed filing deadlines regime begins (fourth month for individuals, sixth month for companies); extractive-sector rate changes take effect.
• End of January, annuallyKRA issues pre-populated returns; your two-month review window opens.

Frequently asked questions

Did PAYE rates change? Will my employees see a difference in net pay?
No. The Act does not change PAYE bands. Monthly payslips remain the same. The changes only concern end-of-contract gratuity and pension benefits.

Does the amnesty forgive the tax I owe?
No. You must pay the principal tax for periods before 31 December 2025. Pay this by 31 December 2026. The amnesty removes penalties, interest and fines. It is a good way to reduce your total debt.

I buy software licences through a distributor. Do I now withhold tax on those payments?
No. Parliament narrowed the royalty definition before passing the Act specifically to exclude ordinary payments for software acquired through distributors. The expanded definitions target payments for the use of proprietary payment card networks and platforms, and interchange and merchant service fees.

We use an outsourced payroll/staffing provider. What changes on our invoices?
From July 2026, employee costs are disbursements. They do not have VAT. Only the service fee or margin has VAT. Expect new invoices with these two parts shown separately. The VAT amount will be lower than before.

Are M-Pesa-style money transfers now subject to VAT?
Core money transfer remains exempt. What becomes taxable is the fee-based payments infrastructure around it: payment processing, settlement, merchant acquiring, gateways and aggregation. Some of that cost will reach merchants and consumers through fees, but the exemption for basic money transfer itself stands.

What are pre-populated returns and when do they start?
KRA will issue pre-filled returns by the end of January each year. Use your data to review these returns within two months. You must confirm the accuracy of the figures. Use the pre-filled figures as a starting point. The new filing deadlines start 1 January 2027.

Can KRA assess you if you do not file a return?
Yes. The Commissioner can now create an assessment from third-party and system data. KRA must follow these rules. KRA must send a written request for information to you at least 30 days before the assessment. You keep your right to object. You do not have to pay the disputed amount to file an objection.

We hold stock that became VAT-exempt on 1 July. What is this claw-back?
If you claimed input VAT on stock while it was taxable and that stock is reclassified as exempt before you sell it, you must repay the claimed input VAT in the month of reclassification. Quantify it now for any affected lines rather than waiting for an audit to find it.

Is there anything in the Act about cryptocurrency?
Yes: virtual asset service providers must file annual information returns about their users, and Kenya can exchange that information with other jurisdictions. If you operate or trade through such platforms, assume KRA’s visibility of digital-asset activity is arriving and plan your compliance accordingly.

When do the new filing deadlines actually bite?
From 1 January 2027. Individuals file by the end of the fourth month after their year of income. Companies and other entities file by the end of the sixth month after their accounting period. Returns demanded by notice are due within four months. Align your accounting close and audit timetable with these dates during 2026 so the first cycle under the new regime is not a scramble.

What your business should do now

1. Use the amnesty. If you have pre-2026 tax debt, get the principal established and paid before 31 December 2026. The waiver on penalties and interest is the easiest money you will save this year.
2. Review payment flows. If you pay card networks, payment platforms or foreign service providers, check if the new withholding tax rules apply. Read your contracts to find gross-up clauses.
3. Revisit outsourcing and staffing contracts. The VAT disbursement rule changes pricing on both sides of these arrangements, restructure invoices to separate disbursements from fees, and assess pre-July 2026 exposure.
4. Update your compliance calendar. The fixed filing deadlines and pre-populated return windows start 1 January 2027, align your accounting close and audit timelines now.
5. Reprice affected products. Imported sugar, timber, fittings, sweetened drinks and advertising materials have new excise costs from 1 July 2026. VAT changes affect costs in pharma, aviation, tourism and housing.
6. Check your stock. If you hold items that changed from taxable to exempt, calculate the input-VAT claw-back for the month of the change.
7. Document everything. Between KRA-originated assessments, the general anti-avoidance rule and the new import documentation rules, the burden of proof sits with you. Clean records, kept as events happen, are your best defence.
8. Ask before you structure. The general anti-avoidance rule is now active. Get advice or ask for a private ruling before a transaction that you make only to reduce tax.

Talk to us

The Finance Act, 2026 is long, technical and full of transitional traps, and how it lands depends entirely on your specific circumstances. Njane & Company helps businesses across Kenya with tax health checks, amnesty applications, VAT reviews and compliance planning. Get in touch for advice tailored to your situation.

This article is general information, not professional advice. Tax outcomes depend on your specific facts, consult a qualified advisor before acting.