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

The Finance Act, 2026 was signed into law by the President on 26 June 2026, and most of its changes took effect on 1 July 2026. A handful of provisions, mainly around filing deadlines and the extractive sector, come into force on 1 January 2027.

The Act touches almost every major tax law in Kenya: the Income Tax Act, the VAT Act, the Excise Duty Act, the Tax Procedures Act, the Miscellaneous Fees and Levies Act, the Stamp Duty Act and more. Some of the most controversial proposals in the original Finance Bill were dropped after public participation, but plenty of substantive change made it through, and much of it will show up in your costs, your contracts and your compliance calendar within months.

In this guide, Njane & Company walks you through what actually became law, what was thrown out, what it means for your business in practical terms, and exactly what to do about it 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.

That process matters for how you read the Act. Some of the changes you may have heard about in the news earlier in the year, when the Bill was published, never became law. Others survived in modified form. The safest approach for any business is to work from the Act as passed, not from coverage of the Bill, and that is what this guide does throughout.

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, and 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 rule – taxpayers will not be forced to deposit disputed tax before appealing.
• The deemed dividend provision – a rule that would have treated certain company transactions as taxable dividends was removed.
• 25% excise duty on phones – the proposed jump from 10% to 25% on imported mobile phones was rejected. The rate stays at 10%, and the idea of taxing phones at the point of activation was also dropped.
• Excise duty on coal – the proposed 5% duty did not pass, a relief for energy-intensive manufacturers.
• Weekend-inclusive deadlines – objection 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 was the one that worried us most on behalf of clients. It would have required taxpayers to deposit disputed tax as a condition of pursuing an appeal. For a small business facing an inflated assessment, that would have turned the right of appeal into a privilege of the cash-rich: you could be right on the law and still lose, simply because you could not afford to park the disputed amount while the case ran. Its removal preserves a fundamental piece of taxpayer protection. If you receive an assessment you believe is wrong, you can still object and appeal without first paying the disputed amount.

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 and 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 at exactly the moment the same Act is trying to protect local industry through other measures. Parliament saw the contradiction and dropped both.

Finally, the proposal to make statutory deadlines run through weekends and public holidays may sound technical, but anyone who has scrambled to file an objection knows that two weekend days inside a 30-day window are not trivial. The existing position stands: Saturdays, Sundays and public holidays do not count against your objection and appeal timelines.

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

If you read our earlier guide on the KRA tax amnesty, this is the confirmation: the Act extends the amnesty framework so that tax debts for periods up to 31 December 2025 qualify, and you now have until 31 December 2026 to settle the principal tax. Pay the principal in time and the penalties, interest and fines attached to it are waived.

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 attracted – the 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, which is exactly 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 – corporation tax or income tax, VAT, PAYE, withholding tax – and establish exactly what KRA’s records say you owe, period by 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 have until 31 December 2026, which means you can spread payments across the remaining months rather than finding the full amount at once. What matters is that the principal is settled in time.
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 now include payments for the use of, or the right to use, proprietary digital payment card networks or platforms – however the charge is labelled (service fee, network fee, processing fee and so on).

To see why this matters, it helps to remember how withholding tax works mechanically. When a payment falls within the withholding net, the payer must deduct tax at the applicable rate before remitting the balance, and account for the deducted amount to KRA. The obligation, and the exposure for getting it wrong, sits with the payer. So the immediate effect of these definition changes is on Kenyan banks, payment processors and merchants who make payments to card networks and platform providers: they must now identify which of those payments are caught, apply the deduction, and remit it.

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, so any withholding tax becomes an additional cost to the Kenyan payer rather than 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 so that after deducting 15% the network still receives its 100 – and 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 drafting of the royalty limb: it catches payments for proprietary payment networks and platforms however the charge is labelled. Renaming an interchange fee a “technology access charge” will not take it out of the net. If the substance is payment for the use of a proprietary card network or payment platform, expect KRA to treat it as caught.

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, and the carve-out spares the ordinary software supply chain from a compliance burden that was never the target.

What to do: if your business makes payments to card networks or payment platforms, expect higher costs and review your contracts now. Identify every payment stream that could fall within the new definitions, check each contract for gross-up language, model the cost, and decide what is absorbed and what is repriced. If you are negotiating new agreements with networks or platforms, the withholding treatment belongs on the negotiation table, not in the post-signature surprises column.

Relief for lenders: bad debts finally include the principal

For banks, microfinance institutions and licensed money lenders, the Act settles a long-running fight with KRA. Where a loan has genuinely gone bad in line with the Commissioner’s guidelines, the deductible bad debt now expressly includes the loan principal, not just the interest.

The old dispute ran like this: KRA’s position effectively treated only the unpaid interest as a deductible bad debt, on the logic that the interest was the lender’s income. But for a lender, that misses the commercial reality. Money is the lender’s stock-in-trade in the same way inventory is a trader’s: when a loan goes bad, the loss is the whole unrecovered advance, not just the income it would have produced. A trader whose stock is destroyed deducts the cost of the stock; a lender whose loan is irrecoverable was, until now, arguing about whether it could do the equivalent. The Act aligns the law with commercial reality, and for institutions with meaningful non-performing books the difference in taxable profit can be substantial.

The discipline requirements have not gone anywhere, and this is where lenders should focus. The deduction is available where the debt has genuinely gone bad in line with the Commissioner’s guidelines. That means your file needs to show the story: the recovery efforts made and their results, the internal approvals for the write-off, and the board or credit-committee documentation behind it. A write-off that exists only as a journal entry is an invitation to a dispute. Lenders should review their write-off policies against the guidelines now, so that deductions claimed under the new provision stand up to scrutiny later.

Big-ticket investment incentives

The Act is generous to large capital projects:

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

The pattern is unmistakable: Kenya is competing for large, patient capital, particularly in energy, infrastructure and extractives, and is willing to give up near-term revenue to attract it. For most small and medium businesses these provisions will never appear on a return, but they matter in two indirect ways. First, if you supply or subcontract to large infrastructure and energy projects, the VAT exemptions change the pricing conversation on those contracts: goods that carried VAT into an exempt project now price differently, and both sides of the contract should understand the treatment before quoting. Second, the indefinite loss carry-forward for large pre-2025 investors signals how the incentive landscape is evolving; businesses planning significant capital expenditure in the coming years should take advice on structuring early, because the thresholds and timing conditions in these provisions are precise and unforgiving.

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, and 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 now tax exempt where the contract (including renewals) ran for at least three years and the gratuity does not exceed 31% of the employee’s earnings over 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 working for Kenya’s designated national carrier are taxed only on income relating to duties performed 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 does not exceed 31% of the employee’s earnings over the contract period. As a worked illustration: an employee earning KES 200,000 per month on a three-year contract has contract-period earnings of KES 7.2 million, so the exempt ceiling is KES 2,232,000. A gratuity within that ceiling passes the size test; anything structured above it invites tax on the excess and scrutiny of the arrangement.

Employers should review their contract templates and gratuity formulas against these two thresholds now. Where existing arrangements promise gratuities above the ceiling or on contracts shorter than three years, the tax treatment needs to be communicated clearly to the affected employees so that expectations are set correctly before the payment date, not after.

The death-in-service pension exemption needs less commentary but deserves notice in your HR communications: where pension benefits are paid out because a member has died, those benefits are now exempt from tax. Payroll and pension administrators should update their processes so that dependants are not incorrectly taxed at precisely the moment the law intends to spare them.

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 2027 – individuals must file by the end of the fourth month after their year of income; companies and other entities by the end of the sixth month after their accounting period. Returns demanded by notice are also due within four months. Update your compliance calendar now.
• Pre-populated returns – KRA 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 assessments – a new power lets the Commissioner raise an assessment directly from third-party and system data, without waiting for you to file or default. The safeguards: KRA must request further information from you in writing at least 30 days before assessing, and your right to object is preserved.
• A general anti-avoidance rule now sits in the Tax Procedures Act. Where arrangements are found to exist mainly to obtain a tax benefit, KRA can reassess you as if they never happened. The Commissioner must give written reasons within 30 days, and taxpayers can seek private rulings on complex transactions in advance.
• Electronic tax system (eTIMS) penalties are restructured: the higher of 5% of the tax due or KES 100,000 for companies (KES 10,000 for individuals). KRA can also now directly waive penalties from electronic system errors up to KES 2 million.
• Importers must obtain and keep export declarations from the country of origin for at least five years, or risk having claims rejected and liabilities assessed on available data.
• Crypto reporting arrives – virtual asset service providers must file annual information returns on their users, and Kenya can now exchange that information with other countries. If you trade or operate in digital assets, assume KRA visibility is coming.

Taken together, these provisions describe where tax administration in Kenya is heading: KRA increasingly works from data it already has – eTIMS 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: 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 usually followed your return or your failure to file. Now the Commissioner can raise one directly from system and third-party data. The safeguard is real but procedural: KRA must write to you requesting further information at least 30 days before assessing, and your objection rights are intact. The practical lesson is to treat any KRA information request as the start of a formal process, because it now often will be. Respond within the window, respond with documents rather than assertions, and if an assessment lands that you disagree with, remember that the “pay to play” rule was dropped: you can object without first paying the disputed amount.

The general anti-avoidance rule reaches substance, not labels. Where an arrangement exists mainly to obtain a tax benefit, KRA can now unwind it and reassess as if it never happened. The two protections built into the rule are worth using: the Commissioner must give written reasons within 30 days, and taxpayers can seek private rulings in advance on complex transactions. If you are planning a restructuring, an intra-group arrangement or any transaction whose tax outcome is a significant part of its appeal, the ruling route converts uncertainty into an answer before you commit, and contemporaneous documentation of the commercial rationale is your first line of defence.

On eTIMS penalties, note the asymmetry the restructured penalty creates for companies: the floor is KES 100,000 per instance regardless of the tax involved, which turns invoice-system discipline into a board-level issue for high-volume businesses. The matching relief – KRA’s power to directly waive penalties arising from electronic system errors up to KES 2 million – acknowledges that the systems themselves sometimes fail. If a system error causes a breach, document the failure as it happens: screenshots, error messages, timestamps. That evidence is the difference between a waiver application and 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, and 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. Where an outsourcing or staffing firm incurs employee costs (salaries, wages, statutory deductions) on behalf of a client, those costs are now treated as disbursements – VAT applies only to the service fee or margin, not the whole payroll. This resolves recent court decisions that had treated the full amount as taxable. If you use or run an outsourcing arrangement, reprice with this in mind – and take advice on exposure for periods before July 2026.
• Payment services become taxable. Payment processing, settlement, merchant acquiring, gateway and aggregation services supplied for a fee are carved out of the financial services exemption. Core money transfer stays exempt, but fintechs and payment intermediaries are now in the VAT net, and some of that 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, and 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, 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, and 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 above, and together they represent a decisive move to tax the payments value chain. What is carved out of the financial-services exemption is specific: 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 – going through the product list and determining, service by service, which side of that line each one falls on – followed by systems work (VAT on invoices, returns, input-tax recovery on newly taxable supply lines) and 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, and 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.

On the schedules: dialyzers, scrap metal and the big infrastructure categories above become exempt; pharmaceutical manufacturing inputs and bioethanol cooking stoves move from zero-rated to exempt (meaning input VAT is no longer recoverable and will embed in prices); and goods for aviation (other than helicopters), tourism facility construction and affordable housing scheme inputs lose their exemptions. Travellers get one nice win: the duty-free personal baggage allowance rises 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, and 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, which 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 also a new claw-back rule to note: if your taxable stock later becomes exempt and is still unsold, you must repay the input VAT you claimed on it in the month of reclassification. With schedules moving as much as they did this year, that rule has immediate work to do. Businesses holding stock in any reclassified category should quantify the claw-back and recognise it in the right month, rather than discovering it in 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, treating drinking water as an essential rather than a revenue item.
• Extra neutral alcohol for licensed beverage manufacturers drops dramatically from KES 500 to KES 80 per litre, while tobacco rates rise and smokeless tobacco (snus) is taxed for the first time 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 broadens from wallet deposits to any value made available for betting purposes, and the 20% withholding tax on winnings returns.

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, against KES 750,000 before – 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 land squarely on construction and furniture. Imported MDF, particle board, plywood and timber at 30%, and sanitary fittings at 35%, feed directly into the cost of building and fitting out – at the same time as affordable housing inputs lose their VAT exemption. Developers and contractors with fixed-price contracts signed before July 2026 should review their variation and tax clauses; those pricing new work should build the new rates in from the start.

The sweetened juice tiers are a health lever wearing a tax badge: KES 20 per litre with added sugar against KES 14.14 without is a standing invitation to reformulate. Beverage makers now have a direct, quantifiable saving from cutting added sugar – nearly KES 6 per litre – which across industrial volumes funds a good deal of product development. The removal of excise on bottled water points the same direction from the other end: water is treated as an essential, sweetened drinks as a choice with a price.

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, and 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 and 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, and 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 will experience this Act very differently. Here is the short version for the sectors we advise most often; every item below is covered in more detail in the sections above.

Manufacturers. Input costs move on several fronts at once: imported sugar excise up more than fivefold, pharmaceutical manufacturing inputs losing input-VAT recovery, but no coal duty and continued protection themes for local production. Model your input basket line by line against the new rates, and check whether the stock claw-back rule touches anything in your warehouse.

Importers and retailers. New excise on timber products, sanitary fittings and banner sheeting; the five-year export-declaration retention rule; and for goods now exempt from VAT, the claw-back on unsold stock. The documentation rule is the sleeper: build origin-country export declarations into your import file checklist immediately.

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 2026 – Finance Act, 2026 signed into law.
• 1 July 2026 – Main commencement date: withholding tax expansion, VAT changes, excise changes, gratuity and pension exemptions, amnesty extension all in force.
• 31 December 2026 – Deadline to pay principal tax under the extended amnesty for periods up to 31 December 2025.
• 1 January 2027 – Fixed filing deadlines regime begins (fourth month for individuals, sixth month for companies); extractive-sector rate changes take effect.
• End of January, annually – KRA 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 touch the PAYE bands, so monthly payslips are unaffected by it. The employment-tax changes concern end-of-contract gratuity and pension benefits on death, not the monthly PAYE computation.

Does the amnesty forgive the tax I owe?
No. You must pay the principal tax for the qualifying periods (up to 31 December 2025) by 31 December 2026. What is waived is everything the principal attracted: penalties, interest and fines. For old debts those add-ons are often the larger share of the ledger balance, which is why the amnesty is still very much worth using.

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, the employee costs the provider incurs on your behalf (salaries, wages, statutory deductions) are disbursements outside VAT; only the provider’s service fee or margin carries VAT. Expect restructured invoices showing the two components separately, and a materially lower VAT line than the old court-driven position implied.

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, drawing on the data it holds. You then have two months to review, amend or confirm. The accuracy responsibility remains yours, so treat the pre-filled figures as a starting point to reconcile against your records, never as an answer to accept unread. The fixed filing-deadline regime that accompanies this starts 1 January 2027.

Can KRA really assess me without my filing anything?
Yes. The Commissioner can now originate an assessment from third-party and system data. The safeguards: KRA must first request information from you in writing at least 30 days before assessing, and your right to object is fully preserved. And because the “pay to play” proposal was dropped, objecting does not require paying the disputed amount first.

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 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 whether the expanded withholding tax definitions now catch those payments, and read your contracts for 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 all carry new excise costs from 1 July 2026; VAT schedule moves shift costs in pharma, aviation, tourism and housing.
6. Check your stock. If anything you hold was reclassified from taxable to exempt, compute the input-VAT claw-back for the month of reclassification.
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. With the general anti-avoidance rule in force, take advice – or seek a private ruling – before any transaction whose appeal is substantially its tax outcome.

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.