The Finance Bill 2026 was tabled on 30th April and is expected to become law by 30th June. At Zade Associates, we have reviewed the proposals and summarised below the key changes that affect most organisations, including SACCOs, NGOs, and trade unions.

The Big Picture

The Finance Bill 2026 proposes significant tax changes across Income Tax, VAT, Excise Duty, and Tax Procedures. The government’s goals appear to be:

  • Broaden the tax base (digital economy, virtual assets, informal sector)
  • Reverse recent court decisions (Supreme Court rulings on withholding tax)
  • Tighten compliance (shorter deadlines, stricter penalties, eTIMS enforcement)
  • Clean up obsolete provisions (removing outdated sections)

With that context, here are the specific proposals our clients should understand.

Tax Amnesty

The Bill waives penalties and interest on tax liabilities for periods up to 3rd December 2025. Taxpayers who have already settled principal taxes receive automatic relief. Those with outstanding principal must apply to the Commissioner and enter a payment plan, settling the principal by 31st December 2026. This is a genuine opportunity to clear historical exposures at reduced cost.

Who benefits: Taxpayers with historic tax debts who cannot afford the full amount including penalties. It encourages people to come clean and pay the principal without fear of punishment.

Who does NOT benefit: Taxpayers who have already paid their taxes on time (no debt to forgive). Some argue it penalizes compliant taxpayers.

 Proposed Charge of VAT on Digital and Platform-Based Financial Services

Digital payment services including mobile money transfers, payment processing, merchant acquiring, and gateway services will now attract 16% VAT. This affects loan collections, beneficiary payments, staff disbursements, and supplier settlements. Organisations using mobile money channels should expect higher transaction costs.

Impact: This is one of the most controversial proposals. It will increase the cost of digital financial services. A Ksh 100 M-Pesa transfer fee could become Ksh 116. The Kenya Private Sector Alliance (KEPSA) warns this could “cripple digital payments and drive traders back to cash transactions.” Contradicts the government’s goal of a cash-lite economy.

Commissioner’s Power to Recover Input VAT on Unsold Supplies

If a business claims input VAT (refund) on goods it purchased, but those goods remain unsold when the VAT rate changes, the Commissioner of KRA can demand that refund back.

Example:

  • January 2026: Retailer buys 1,000 phones for Ksh 10,000 each, pays Ksh 1,600,000 VAT, claims refund.
  • July 2026: Government reduces VAT rate from 16% to 10% on phones.
  • Retailer still has 500 unsold phones.
  • KRA demands repayment of input VAT on those 500 phones (500 × Ksh 10,000 × 16% = Ksh 800,000).

Impact: Punishes businesses with slow-moving inventory. Discourages bulk purchasing. Adds complexity to inventory management. Could lead to cash flow crises for businesses that bought stock in good faith but couldn’t sell before a rate change.

Zero-Rated to Exempt (Hidden Tax Increase)

Several goods will move from zero-rated to exempt status. Under zero-rated, businesses claim refunds on input VAT. Under exempt, they cannot. The consumer pays 0% at the till, but prices rise because manufacturers absorb unrecoverable VAT on raw materials.

Affected items include locally assembled phones, electric buses and motorcycles, solar and lithium-ion batteries, animal feeds, and sugarcane transportation services. Organisations with solar installations, e-mobility investments, or agricultural exposure should reassess project costs.


Rental Income Tax Increase

The final tax on gross residential rental income rises from 7.5% to 10%. This applies to any organisation owning residential property. Annual tax on Ksh 500,000 monthly rent increases from Ksh 37,500 to Ksh 50,000.

Who pays: Landlords earning gross rental income up to Ksh 10 million per year (above that uses standard corporate/personal income tax rates).

Impact: Landlords may increase rent to pass on the tax to tenants. Could make housing more expensive for renters.

Filing Deadline Compression (Effective January 2027)

Income tax returns will be due four months after year end, down from six months. Nil returns are due within one month. For organisations with December year ends, the deadline moves from 30th June to 30th April, compressing audit, board approval, and filing. Early engagement with auditors is advised.

Impact: Less time for taxpayers and accountants to prepare. Pressure on KRA to process faster. Increased penalties for late filing.

Calendar Days for Objections and Appeals

Current law: Time limits for filing objections and appeals are counted in working days (Monday–Friday,excluding public holidays).
Proposed: Time limits counted in calendar days (every day including weekends and public holidays).

Impact: Taxpayers and their advisors have less actual time to respond. A notice issued on a Friday before a long weekend could expire before the taxpayer even sees it. Favours KRA over taxpayers. Increases risk of default judgments against taxpayers who miss deadlines.

Deemed Dividends (Minimum 60% Floor)

Where a company retains profits without commercial justification, the Commissioner may treat at least 60% as deemed dividends, triggering withholding tax. Retained earnings will face scrutiny. Board minutes and financial policies must clearly document the rationale for profit retention, including reinvestment plans, capital expenditure, or regulatory reserve requirements.

Impact: This benefits KRA by increasing tax collections from retained earnings. It disadvantages closely held companies, including many SACCOs structured as companies, that retain profits for reinvestment, expansion, or regulatory reserves. Under previous law, the Commissioner had discretion with no minimum floor. The 60% floor removes flexibility. A SACCO retaining Ksh 10 million for a new branch may now face a deemed dividend assessment on Ksh 6 million, triggering withholding tax even though no cash distribution occurred. Proper documentation of reinvestment plans, board approvals, and regulatory requirements is no longer optional.

Withholding Tax on Interchange Fees and Card Payments

Following the Supreme Court decision in Barclays Bank v. Commissioner, the Bill expands the definition of management fees to include interchange fees, merchant service fees, and payments to card companies. These will now attract withholding tax, reversing the Court’s ruling.

What the proposal does: Requires the payer (usually a Kenyan bank) to withhold tax at source when paying these fees to card companies (which are often foreign entities like Visa Inc. in the US) and to other banks.

Impact: Increases the cost of card payments. May lead to higher merchant fees, which are eventually passed to consumers as higher prices. Contradicts the Supreme Court ruling, potentially leading to legal challenges

Income Tax on Imported Second-Hand Clothing (“Mitumba”)

Imported second-hand clothing will attract income tax at an effective rate of 1.5% of customs value, calculated as 5% deemed profit subjected to 30% corporate rate. This increases costs for traders and consumers.

Impact: Will increase the price of mitumba, which is a source of affordable clothing for many low-income Kenyans. May reduce imports and hurt thousands of small traders who rely on the mitumba value chain.

Excise Duty on Mobile Phones (Effective January 2027)

Excise duty on mobile phones will be payable at point of activation, not importation. This shifts liability from importers to network operators and consumers.

Impact: This benefits mobile phone importers and wholesalers who no longer pay duty upfront, improving their cash flow. It disadvantages consumers who will likely face higher prices as the duty is passed on, and network operators who must administer collection. The shift from importation to activation means phones imported but never activated (lost, damaged, or resold outside Kenya) escape duty entirely, creating a potential revenue loophole.

Virtual Assets

Virtual Asset Service Providers (VASPs) must file information returns on users. Penalties for non-compliance reach Ksh 1 million. Excise duty of 10% applies to fees charged on virtual asset transactions.

Impact: This benefits KRA through increased visibility into cryptocurrency and digital asset transactions, closing a previous tax gap. It disadvantages VASPs who face heavy compliance burdens, and users who may face higher transaction costs and reduced privacy. For most SACCOs, NGOs, and unions, there is no direct impact unless they hold or transact in virtual assets. However, members who trade cryptocurrencies may face additional reporting.

Bad Debt VAT Refunds

The waiting period for VAT refunds on bad debts reverts from two years to three years, undoing the 2025 amendment. This delays cash flow recovery for businesses with unpaid supplies.

Impact: This benefits KRA by retaining revenue longer and reducing refund claims. It disadvantages businesses, including SACCOs and NGOs that supply goods or services on credit, by delaying cash flow recovery on unpaid invoices. A customer who defaults after two years but before three years now yields no VAT refund. This reversal within 12 months of the 2025 amendment creates policy unpredictability.