The Finance Act, 2026 was assented to on 26 June 2026 and introduces sweeping amendments to Kenya’s tax laws, including the Income Tax Act, the Value Added Tax (VAT) Act, the Excise Duty Act, the Tax Procedures Act, the Miscellaneous Fees and Levies Act, the Stamp Duty Act, and other related legislation. Most provisions of the Finance Act 2026 Kenya took effect on 1 July 2026, although a number of amendments have later or staggered commencement dates.
If you are a business owner, investor, employer, taxpayer, or finance professional in Kenya, this guide breaks down everything you need to know about the Finance Act 2026 tax changes — from new withholding tax obligations and digital asset reporting rules to VAT exemptions, excise duty increases, and the extended KRA Tax Amnesty Programme.
Overview of the Finance Act 2026
The Finance Act 2026 reforms are designed to strengthen tax administration, broaden Kenya’s tax base, encourage strategic investment, enhance compliance, and provide targeted tax relief across key sectors of the economy. Key highlights of the Finance Act 2026 Kenya amendments include:
- Strengthened tax administration and enforcement powers for the Kenya Revenue Authority (KRA)
- New tax rules for digital transactions, software payments, and virtual assets
- Expanded tax incentives for strategic investments in infrastructure, manufacturing, and energy
- Broader withholding tax obligations across selected transactions and industries
- An extended tax amnesty programme and simplified taxpayer compliance measures
Businesses should assess how the Finance Act 2026 affects their operations and implement any necessary changes before the relevant effective dates.
Effective Dates of the Finance Act 2026
The Finance Act 2026 effective date follows a staggered commencement schedule:
- 1 July 2026 — Most provisions of the Act came into force
- 1 September 2026 — Amendment to section 43 of the Tax Procedures Act (retention of export declarations)
- 1 January 2027 — Sections 17, 18 and 24 of the Income Tax Act amendments
Income Tax Act Amendments
The Income Tax Act amendments Kenya 2026 cover a wide range of areas, from the definition of “royalty” to capital gains tax on offshore transfers. Key changes include:
Royalty Definition Expanded to Cover Software and Digital Payments
The Finance Act 2026 broadens the definition of “royalty” to expressly capture software payments and fees charged by proprietary digital payment card networks. This means cross-border software licensing fees and card-network fees paid to non-residents will generally attract withholding tax as royalties, unless a specific exemption or treaty relief applies.
New Definitions for Gambling, Betting and Winnings
New definitions of “withdrawals” and “winnings,” aligned to the Gambling Control Act, 2025, create a clearer statutory basis for taxing amounts paid out by licensed betting, gaming, and lottery operators.
Non-Resident Rental Income Tax (Section 6B)
A new non-resident rental income tax introduces a simplified registration and filing framework for non-residents earning rental income from Kenyan property, with returns and payment due by the 20th day of the following month.
Tax-Free Gratuity for Long-Term Contracts
Gratuity paid under a contract of service of at least three years is now tax-exempt up to 31% of an employee’s emoluments, giving employers a tax-efficient way to structure long-term staff benefits.
New Withholding Tax on Scrap Metal and Winnings
Withholding tax Kenya 2026 now applies to scrap metal sales (1.5%) and winnings (20%), requiring payers to withhold and remit tax and issue withholding tax certificates.
Trust Income Taxed Once, Not Twice
Income taxed at the trustee level is now final, removing the risk of double taxation of trust income at the beneficiary level.
Harmonised Filing Deadlines
Individuals must file self-assessment returns by the fourth month after year-end; companies and other entities by the sixth month — standardising Kenya’s tax compliance calendar.
Enhanced Capital Allowances for Large Investors
Investments exceeding KES 10 billion qualify for a 100% first-year capital allowance and extended deficit carry-forward, alongside enhanced bad debt relief for banks and lenders.
Capital Gains Tax on Indirect Offshore Transfers
Capital gains tax (CGT) now extends to non-resident share transfers that derive their value from Kenyan assets — a major change for multinational groups restructuring offshore.
REIT Capital Gains Relief and Reduced Repatriation Tax
Transfers of property into a Real Estate Investment Trust (REIT) are now CGT-exempt, death benefits are exempt, and the non-resident repatriation tax rate drops from 37.5% to 30% (15% for section 7B licensees and contractors).
VAT Changes Under the Finance Act 2026
The VAT changes Kenya 2026 introduce new exemptions alongside tighter rules for digital finance and zero-rated goods:
- VAT exemption for PPP infrastructure projects, subject to Treasury approval
- VAT exemption for National Infrastructure Fund projects
- VAT exemption for large capital investments exceeding KES 3 billion
- VAT exemption for LPG storage infrastructure projects over KES 5 billion
- Clarification that payment processing, merchant acquiring, and payment gateway services are taxable — a major shift for fintech companies in Kenya
- New statutory definitions of “tour operator” and “in-house supplies” for the tourism sector
- Deletion and narrowing of selected zero-rated supplies
- A new input tax clawback (Section 17A) where previously taxable supplies become exempt
- Extension of the VAT refund claim period for bad debts from two years to three years
- Input tax deduction now allowed on supplies to the Kenya Defence Forces, National Intelligence Service, and National Police Service
- New VAT exemptions for dialyzers, scrap metal, pharmaceutical manufacturing inputs, and bioethanol cooking stoves
Excise Duty Act Amendments
The Excise Duty Act 2026 amendments increase duty on selected goods while introducing relief for manufacturers:
- New statutory definitions for Antique, Vintage, and Classic vehicles
- Excise duty refund relief for manufacturers producing exempt excisable goods
- Excise duty on imported sugar increased to KES 40 per kilogram
- Higher excise duty on cigarettes and tobacco products
- New excise duty on imported MDF, particle boards, plywood, timber products, plastics, and banner materials
- Revised definition of “amount deposited” for betting and gaming excise duty
Tax Procedures Act Amendments
The Tax Procedures Act amendments focus heavily on digital compliance, anti-avoidance, and taxpayer relief:
- Mandatory annual reporting for Virtual Asset Service Providers (VASPs) — a first for crypto tax Kenya
- Legal framework for automatic exchange of virtual asset information with foreign jurisdictions (aligned with the OECD Crypto-Asset Reporting Framework)
- Simplified reinstatement of deregistered taxpayers
- A comprehensive General Anti-Avoidance Rule (GAAR) empowering KRA to disregard artificial tax arrangements
- Mandatory retention of export declarations and customs documentation
- KRA empowered to raise assessments using third-party information (eTIMS, banking data, customs records)
- KRA Tax Amnesty Programme 2026 extended to 31 December 2026 for liabilities due on or before 31 December 2025
- Introduction of pre-populated tax returns
- New penalties for non-compliance with electronic tax systems
- Waiver of penalties where failures result from KRA system errors
Miscellaneous Fees and Levies Act Changes
- Expanded Import Declaration Fee (IDF) exemptions for aircraft parts and qualifying LPG infrastructure investments
- Expanded Railway Development Levy (RDL) exemptions for the same categories
- Combined VAT, IDF, and RDL relief for strategic energy investments exceeding KES 5 billion
Stamp Duty Act Amendment
Section 96A now expressly confirms that the stamp duty exemption for REIT transactions applies where a beneficial interest — not just legal title — in property is transferred into a REIT, removing prior uncertainty for property securitisation transactions.
Affordable Housing Levy and Road Maintenance Levy Changes
- The collector’s commission for the Affordable Housing Levy is capped at up to 2% of collections.
- The Road Maintenance Levy on petrol and diesel is reduced from KES 3.00 to KES 1.50 per litre, easing fuel and transport costs.
What Businesses Should Do Now
With the Finance Act 2026 Kenya amendments touching nearly every tax type, businesses, investors, and individual taxpayers should:
- Review contracts and payments involving software, digital platforms, and card networks for new withholding tax exposure.
- Update ERP, payroll, and invoicing systems for revised VAT, excise, and withholding tax rates.
- Assess offshore holding structures for indirect capital gains tax exposure.
- Evaluate eligibility for the extended Tax Amnesty Programme before the 31 December 2026 deadline.
- Confirm compliance readiness for VASP reporting, GAAR, and third-party data-driven assessments.
Download the Full Finance Act 2026 Newsletter
For the complete, detailed breakdown — including previous position, amendment, and practical impact tables for every section — download the full MGK Consulting Finance Act 2026 newsletter:
Download the Full Finance Act 2026 Newsletter (PDF)
How MGK Consulting Can Help
MGK Consulting’s Tax Advisory team helps clients navigate the Finance Act 2026 Kenya changes with practical, commercially focused advice, including:
- Finance Act 2026 impact assessments
- Tax health checks and compliance reviews
- Tax Amnesty eligibility assessments and application support
- KRA engagements and tax dispute resolution
- ERP and accounting system tax configuration reviews
- Payroll tax reviews
- Transfer pricing advisory and support
- Transaction and contract reviews
- Tax planning and advisory opinions
- Finance Act implementation workshops and staff training
To understand how the Finance Act, 2026 affects your business or to explore the Tax Amnesty Programme, contact our Tax Advisory Team at enquiries@mgkconsult.co.ke.
This article is a summary for general information purposes only and does not constitute legal, tax, accounting, or other professional advice. Please refer to the full newsletter or contact MGK Consulting for guidance tailored to your specific circumstances.