The Finance Bill 2026 was tabled in Parliament in May 2026, proposing amendments to the Income Tax Act, VAT Act, Excise Duty Act, Tax Procedures Act, Miscellaneous Fees and Levies Act, and Stamp Duty Act. Most provisions are proposed to take effect on 1 July 2027, with a smaller set effective from 1 January 2027. Businesses should read and engage with the Bill now, even though the effective dates are next year.
Most Finance Bill 2026 provisions are proposed to take effect on 1 July 2027. A smaller set, including changes to return filing deadlines and certain excise measures, take effect on 1 January 2027.
Withholding Tax on Payment Processing and Card Transactions
One of the most commercially significant changes in the Bill is the expansion of the definition of ‘management or professional fees’ to include interchange fees and merchant service fees arising from transactions that use a card as a means of payment. This means card scheme fees and payment processing charges paid to non-residents will attract withholding tax at 20%.
Separately, the definition of ‘royalty’ has been significantly expanded to cover payments for access to, participation in, or use of proprietary digital platforms, payment networks, payment card schemes, switching systems, clearing systems, and settlement systems. Whether the payment is described as a service fee, transaction fee, network fee, assessment fee, or processing fee, it will now fall within the royalty definition and attract withholding tax accordingly.
These changes have direct implications for payment service providers, fintech businesses, and any company using card payment infrastructure. Businesses in this space should model the withholding tax impact on their current payment arrangements.
New Tax on Non-Resident Rental Income
The Bill introduces a new non-resident rental income tax as a final tax on income derived by non-residents from the use or occupation of property in Kenya. Non-residents earning rental income will be required to register with KRA through a simplified framework and file monthly returns, with tax due by the 20th of the following month.
Capital Gains: REIT Transfers Exempted
Capital gains arising from the transfer of property to a registered real estate investment trust will be exempt from tax. This is a welcome relief for the real estate sector and is aimed at encouraging the growth of REITs as an investment vehicle in Kenya.
Trust Income Taxed Once at Trustee Level
The Bill overhauls the trust income provisions. Going forward, income received by a trustee, executor, or administrator will be taxed once at that level. Dividends or interest included in the trustee’s income will not be subject to further tax, and beneficiaries will not be liable again on income already taxed in the trust. This simplifies the tax treatment of trusts and removes the risk of double taxation within trust structures.
General Anti-Avoidance Rule Introduced
A new general anti-avoidance provision is introduced under the Tax Procedures Act. Where the Commissioner determines that a person has entered into a scheme primarily to obtain a tax benefit, the Commissioner may disregard the scheme and assess the person’s tax liability as if it had not been carried out. The Commissioner has five years from the end of the relevant tax period to raise such an assessment.
This is a broad provision that will affect tax planning structures across all sectors. Any arrangement whose principal purpose is tax reduction is potentially at risk. Clients with aggressive tax planning structures should review their positions before the provision takes effect.
Virtual Asset Service Providers Brought into the Tax Net
Virtual asset service providers, including cryptocurrency exchanges and trading platforms, will be required to file information returns with KRA disclosing all reportable users. Kenya may also enter automatic exchange of information agreements with other countries covering virtual asset transactions. Penalties for non-compliance are significant: up to KES 1 million per failure to file, and KES 100,000 per false statement or omission.
Tax Amnesty Extended
The tax amnesty under Section 37E of the Tax Procedures Act has been extended. The period covered has been updated to include liabilities up to 31 December 2025, and the deadline for settlement payments has been pushed to 31 December 2026. Businesses with outstanding tax liabilities from prior years should consider taking advantage of this window.
Electronic Invoicing Penalties Restructured
The penalty for failure to comply with electronic invoicing requirements has been restructured to the higher of: two times the tax due, KES 100,000, or KES 10,000 for individuals. The Commissioner must first issue a written notice and consider the taxpayer’s response before imposing the penalty. A new provision also allows penalty and interest waiver where the liability does not exceed KES 2 million and arose from an electronic tax system error.
Excise Duty: Key Changes
- Mobile phones: Excise duty liability shifts from the point of importation to the point of activation, a significant change for phone importers and distributors.
- Antique, vintage, and classic vehicles (30 years or older, valued at KES 10 million or more): New excise duty at 50% of excisable value.
- Fruit juices: New specific excise rates introduced at KES 14.14 per litre (unsweetened) and KES 20 per litre (sweetened).
- Coal: New excise duty at 5% of excisable value.
- EAC origin exclusions removed from several excise categories, meaning goods from EAC Partner States in those categories will now be treated the same as other imports for excise purposes.
VAT: Payment Processing Services Now Taxable
The VAT exemption for financial services is amended to exclude money transfer services, payment processing, settlement, merchant acquiring, gateway, and aggregation services supplied over a software or platform for a fee or commission by a payment service provider. These services will now be subject to VAT. Businesses providing these services that are not currently registered for VAT will need to register.
New VAT exemptions are also introduced, covering mobile phones, motorcycles (HS 8711.60.00), electric bicycles, solar and lithium-ion batteries, electric buses, bioethanol stoves, dialyzers, scrap metal, inputs for animal feed and pharmaceutical manufacturing, and the transportation of sugarcane to milling factories.
The Finance Bill 2026 contains substantial changes across all major tax heads. Intelpoint Consulting is available to assist businesses with impact assessments, transaction reviews, and planning advice ahead of the proposed effective dates. Contact us to discuss how the Bill affects your specific position.
Contact Intelpoint Consulting: www.intelpointconsulting.com and info@intelpointconsulting.com