Kenya: Finance Bill, 2026

5 May 2026

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Overview

The Finance Bill, 2026, proposes targeted tax reforms, with fewer broad-based tax increases compared to prior years, signalling a more measured fiscal approach.
Key proposals include expanded withholding tax obligations on digital payments, changes to VAT exemptions, and reforms to capital gains tax rules, particularly for indirect share transfers.
The Bill introduces several administrative and compliance changes, including shorter tax return timelines, expanded KRA enforcement powers, and the introduction of prepopulated tax returns.
Sector-specific measures affecting financial services, real estate (including REIT incentives), telecommunications, and manufacturing may impact investment decisions and cost structures.

Please note: This article is based on a copy of the Finance Bill, 2026 that is available in general circulation, but has not yet been confirmed as the official copy tabled before the National Assembly.

Unlike the Finance Bill, 2024, which was withdrawn after significant public opposition, the Finance Bill, 2026 (Bill) includes fewer tax increase proposals. This may partly reflect the Government’s intention to ease public concerns about high taxation ahead of next year’s general elections.

That said, the Bill contains a few proposals aimed at widening the tax base as follows:

The application of Kenyan withholding tax on merchant service fees and interchange fees paid to banks and other entities that enable businesses to accept card payments;
The expansion of the definition of royalties subject to Kenyan withholding tax to include:
- payments to payment network service providers for the use of their networks or platforms in the processing and settling of transactions; and
- payments for the use of, or right to use, payment processing, clearing, or settlement systems;
The imposition of value added tax on digital financial services, including money transfer, payment processing, settlement, merchant acquisition, payment gateway, and aggregation services supplied via software platforms for a fee or commission;
The application of Kenyan capital gains tax to gains derived by non-residents from the transfer of shares where:
- the shares derive their value from Kenya;
- the transfer results in a change in the group membership of a Kenyan resident company; or
- the transfer results in a change of ownership, title, or interest in property located in Kenya; and
An increase in the residential rental income tax rate from 7.5% to 10%.

The Bill includes some positive proposals such as:

VAT exemptions for implementation of infrastructure projects under a public private partnership framework; and
CGT and stamp duty exemption on transfers of property to a real estate investment trust.

A more comprehensive summary of the key proposed changes under the Bill is available here.