What Has Changed?
The Finance Act, 2026 amended the following laws:
Key Dates and What To Do
Key Effective Dates
What Taxpayers Should Do
Income Tax
Income Tax: Filing Deadlines
Individual filing deadlines have changed
From 1 January 2027, individual taxpayers will be required to file income tax returns by the last day of the fourth month after the end of the year of income.
Individual taxpayers use the calendar year, meaning they will be required to file tax returns by 30 April.
Who is affected?
Filing Deadlines: What Should You Do?
What should you do?
Income Tax: Gratuity, Rental Income and Card Payments
Gratuity payments
Gratuity to qualify for tax exemption if the contract of service is for a period of at least three continuous years (or an extension of a three year contract) and the gratuity does not exceed 31% of emoluments earned during that period.
What to do: Ensure that only gratuity payments that meet the above conditions enjoy the exemption.
Non-resident rental income
Non-residents earning rental income from Kenyan property must register under a simplified framework and file and pay tax by the 20th of the following month, unless a resident agent is withholding on their behalf.
What to do: Review rental arrangements and follow KRA guidance on registration, filing and payment.
Card payment transaction fees
Interchange fees and merchant service fees from card payment transactions are classified as management or professional fees for withholding tax purposes.
What to do: Banks, fintechs and payment service providers to take note.
Income Tax: Other Business Changes
Selected business and investment changes
Tax treatment of trusts
Income received by trustees, executors or administrators is treated as their income for tax purposes. Where tax has already been paid by the trustee, executor or administrator, the beneficiary will not be taxed again on the same income.
Bad debts by financial institutions
Banks, microfinance institutions and other qualifying financial institutions carrying on money lending business may deduct bad debts, in line with guidelines issued by the Commissioner. A bad debt shall include the principal, interest and any other amount related to the debt.
Exemption from CGT OF REITs
Capital gains tax (CGT) relating to the transfer of property to a Real Estate Investment Trust registered by the Commissioner are exempt.
Large petroleum and gas storage investments
100% of Investment allowance is deductible in the first year of use for petroleum and gas storage facilities where the investment exceeds KES 10 billion.
Value Added Tax
VAT: Business Transactions
Key VAT changes for businesses
Labour outsourcing services
Employee-related costs such as salaries, wages and statutory deductions are treated as disbursements where a supplier provides labour, outsourcing or employee placement services.
What to do: Businesses to note the amendment.
Hire purchase arrangements
The exclusion of finance charges from taxable value applies only to hire purchase agreements registered under the Hire Purchase Act.
What to do: Hire purchase businesses should ensure that they are licensed under the Hire Purchase Act and the agreements between them and the buyers are registered under the same act.
Period for claiming refund on bad debts
The period for claiming a VAT refund on bad debts has been reviewed from two years to three years.
What to do: Maintain proper records and evidence supporting the bad debt claim.
VAT must only appear on taxable supplies
An invoice showing VAT should only be issued for a taxable supply.
What to do: VAT-registered businesses should confirm the tax status of goods and services before charging VAT.
VAT: Changes to selected Goods and Services
Returning residents
The VAT Act is now aligned with the East Africa Community Customs Management Act (EACCMA) on the threshold of VAT-free goods brought into Kenya by a returning resident which USD 2,000.
Clarification of scope of exempt financial services
Fees charged by payment service providers for digital payment services, including payment processing, settlement, merchant acquiring, gateway and aggregation services, are not exempt from VAT.
Important: This provides a distinction between the standard banking or the traditional financial services and the digital platform operations.
VAT: Selected Goods and Services (continued)
Services of tour operators
The Act defines "tour operator" and "in-house supplies" to clarify the scope of VAT exemption for tour operator services.
Selected exempt items
The Act has also provided exemptions for selected goods and services, including dialyzers, scrap metal, qualifying pharmaceutical inputs, bioethanol vapour stoves and selected infrastructure-related supplies.
Excise Duty
Excise Duty: Selected Changes
| Product | Change |
|---|---|
| Bottled water | Excise duty removed |
| Fruit and vegetable juices without added sugar | Fruit and vegetable juices with out sugar distinguished from those with sugar and Excise duty retained at KES 14.14 per litre |
| Fruit and vegetable juices with added sugar or sweetener | KES 20 per litre |
| Specified imported sugar | KES 40 per kilogram (subject to stated exclusions) |
| Antique, vintage and classic vehicles | 50% of excisable value |
| Betting (including on horse racing) and gaming deposits | Excise duty of 5% is charged on amount deposited for betting purposes. |
Excise Duty: What Should Businesses Do?
Tax Procedures
Tax Procedures: Key tax administration changes
Tax amnesty
The tax amnesty on penalties, interest and fines introduced for liabilities due up to 31 December 2025. Where principal tax is outstanding, it must be paid by 31 December 2026 to qualify for the amnesty, subject to the applicable conditions.
Pre-populated tax returns
KRA may issue pre-populated returns using available taxpayer information. A taxpayer may confirm or amend the return.
What to do: Review all pre-filled information carefully before submission.
Electronic tax systems
Where a taxpayer fails to issue an electronic invoice, file electronically or pay electronically, KRA will issue a notice and consider the taxpayer's explanation before applying the relevant penalty. System-generated errors may qualify for waiver of penalties or interest, subject to the law.
What to do: Keep screenshots, support tickets and correspondence where a system issue affects compliance.
Imports, Fees and Other Laws
Imports, Fees and Other Laws
New documentation requirement for imports
From 1 September 2026, importers must obtain and retain an export declaration, export entry, customs export certificate or equivalent document from the country of export. The document should support importation of goods into Kenya.
What should importers do?
- Request export documentation from suppliers.
- Keep the records for at least five years.
- Ensure the documents show exporter, importer, goods description, quantity, value, tariff classification and country of export.
- Produce the documents when requested by KRA.
Other Selected Changes
The Act also includes changes affecting the following areas. Affected taxpayers should refer to the Finance Act and subsequent official KRA guidance.
What Should You Do Next?
Individuals
- Prepare return information earlier.
- Review any pre-populated return carefully.
- Check whether any of the amended provisions apply to you.
Employers
- Note new conditions with regard exemption of gratuity payments.
- Update payroll records and filing calendars.
- Prepare employee tax information early.
Businesses
- Note changes to VAT status of certain goods and services.
- Check withholding tax treatment for affected payments.
- Maintain proper records to support tax claims.
- Document any system errors affecting compliance.
Importers
- Obtain export declarations or equivalent documents.
- Retain records for at least five years.
- Confirm tariff classification and applicable VAT, excise, IDF or RDL treatment.
Sector-specific taxpayers
Businesses in all sectors affected to review the changes and adjust accordingly.
Regularly check the KRA Website or social media platforms for operational guidance provided.
