Finance Act 2026 Takes Effect: What It Means for Kenyan Taxpayers and Businesses
Kenya’s Finance Act 2026 is now in force, introducing a number of changes that affect taxpayers, businesses, employers, investors and individuals across the country.
President William Ruto signed the Finance Bill 2026 into law on June 23, 2026, turning it into the Finance Act 2026. The legislation was subsequently gazetted on June 26, with most of its provisions taking effect from July 1, 2026. A few measures have different commencement dates.
The new law is intended to support government revenue collection while changing several aspects of Kenya’s tax administration system.
For ordinary taxpayers, some of the most important changes concern annual tax returns, the KRA’s iTax system, tax debts, VAT, withholding tax and the way certain business expenses are treated.
Here is what Kenyans need to know.
Finance Act 2026 is already operational
Unlike the Finance Bill, which is a proposal before Parliament, the Finance Act 2026 is now law.
The National Assembly passed the Bill on June 18, 2026, before President Ruto assented to it five days later. The law supports the government’s KSh4.8 trillion budget for the 2026/27 financial year.
Most of the tax measures started applying from July 1, although some provisions have later effective dates.
This means taxpayers and businesses should no longer rely on information relating to the original Finance Bill because some of the proposals were changed or removed before the legislation was enacted.
Annual tax filing deadlines have changed
One of the most important administrative changes affects annual income-tax returns.
The traditional June 30 deadline has been replaced by different filing timelines depending on the category of taxpayer.
Individuals are now required to file their returns by the end of the fourth month after the end of the year of income.
The change is expected to distribute filing activity more evenly instead of having millions of taxpayers attempting to submit returns around the same deadline.
For salaried employees whose income is fully subjected to PAYE, the applicable deadline is now April 30, according to guidance on the new filing framework.
Taxpayers should therefore check the deadline applicable to their specific tax obligations rather than automatically assuming that June 30 remains the relevant date.
KRA can now pre-populate tax returns
Another significant change involves the way returns are prepared.
The Finance Act gives the Commissioner the power to issue auto-populated tax returns.
Under the new arrangement, taxpayers will be expected to review the information provided by KRA and either confirm it or make the necessary amendments within the prescribed period. RSM’s analysis says taxpayers will have two months after issuance to confirm or amend the auto-populated return.
This could make tax filing easier for people whose income and transaction information is already available to the tax authority.
However, taxpayers should not simply accept a pre-filled return without checking it.
Errors, missing information or incorrect figures could still occur, and the taxpayer remains responsible for ensuring that the submitted return accurately reflects their tax position.
KRA is updating iTax
The changes come as KRA continues to modernise its digital tax administration systems.
The authority has been introducing new iTax functionalities to support the implementation of the Finance Act.
KRA also recently announced virtual training sessions to help taxpayers understand the Finance Act 2026 and the updated iTax platform.
This is particularly relevant because taxpayers experienced intermittent iTax delays around the June 30 filing period, which KRA attributed to a surge in traffic as millions of people attempted to submit their returns.
The shift toward more automated filing means taxpayers will increasingly need to monitor their iTax accounts and verify information supplied by the tax authority.
Six-month tax amnesty for older tax debts
The Finance Act also introduces an important opportunity for taxpayers with historical tax debts.
KRA’s 2026 Tax Amnesty Programme provides a 100 percent waiver of penalties, interest and fines associated with qualifying tax debts accrued up to December 31, 2025.
The amnesty began on July 1, 2026 and closes on December 31, 2026.
However, the programme does not simply erase the principal tax.
Taxpayers with outstanding principal amounts generally need to settle the principal tax in order to benefit from the waiver.
KRA says taxpayers can either make a lump-sum payment or apply for a structured payment plan through iTax.
Who qualifies for the tax amnesty?
The amnesty covers eligible tax liabilities and debts relating to periods up to December 31, 2025.
Tax liabilities arising from January 1, 2026 onwards do not qualify.
There are also situations in which the waiver can be processed automatically.
For example, taxpayers who had already paid their principal tax but were left with penalties and interest can receive the qualifying waiver automatically.
Taxpayers with late-filing penalties but no outstanding principal tax can also qualify after completing their outstanding returns.
This makes the amnesty potentially valuable for individuals and businesses carrying old tax penalties.
Taxpayers should not confuse amnesty with cancellation of tax
The amnesty does not mean that KRA is cancelling legitimate principal tax debts.
The central requirement is that qualifying principal tax must be settled.
KRA says taxpayers with outstanding pre-2026 principal tax can pay the amount in full during the amnesty period and receive an immediate waiver of the associated qualifying penalties and interest.
Those unable to make a lump-sum payment can apply for a payment plan.
However, the principal tax under the agreed plan must be cleared by December 31, 2026 for the taxpayer to successfully receive the waiver.
New withholding-tax rules for payment services
The Finance Act also introduces withholding-tax provisions affecting certain payment-related fees.
According to RSM’s analysis, the law introduces withholding tax on interchange fees, merchant service fees and payments to card companies following a Supreme Court ruling concerning the tax treatment of such fees.
The change is particularly relevant to financial institutions, payment service providers and businesses involved in card and merchant-payment ecosystems.
For ordinary consumers, the effect may be less direct, but businesses operating within the payments industry will need to understand the new obligations.
Changes affecting VAT on financial services
The Act also modifies aspects of VAT treatment for financial services.
Certain financial services supplied through software or platforms for a fee or commission are excluded from VAT exemption under the new framework.
This could be particularly significant as Kenya’s financial sector becomes increasingly digital.
Banks, fintech companies and other financial businesses that deliver services through technology platforms will need to review the VAT treatment applicable to their particular services.
Returning passengers get a higher VAT-free baggage threshold
The Finance Act increases the VAT-free threshold for accompanied baggage brought into Kenya by returning passengers.
The threshold rises from US$300 to US$2,000.
The measure could benefit Kenyans returning from abroad with personal goods that fall within the applicable customs and tax rules.
It is important, however, for travellers to distinguish between the VAT-free baggage threshold and other customs requirements that may still apply.
Changes affecting bad-debt deductions
The law also changes the treatment of bad debts for certain lending businesses.
For money-lending businesses and institutions licensed under the Banking Act, Microfinance Act and Central Bank of Kenya Act, allowable bad-debt deductions can include the principal, interest and other amounts relating to the loan.
The measure could have implications for financial institutions when determining taxable income and accounting for loans that ultimately become irrecoverable.
Major investors receive a loss-carry-forward provision
The Finance Act contains a special provision for companies that had invested at least KSh10 billion in Kenya before July 1, 2025.
Such companies are allowed to carry forward losses incurred before July 1, 2025 until the losses are extinguished.
This is particularly relevant to large investors that accumulated substantial tax losses under the previous tax framework.
The provision could provide greater certainty for qualifying investors while limiting the impact of the previous restrictions on loss carry-forward.
Investment incentive for petroleum and gas storage
Companies investing more than KSh10 billion in petroleum or gas storage facilities can qualify to claim 100 percent of their investment in the first year the facilities are put into use.
The measure is intended to encourage large-scale investment in infrastructure that supports fuel and energy logistics.
Given Kenya’s dependence on petroleum imports, additional storage capacity can also have broader implications for energy security and supply management.
Labour outsourcing gets a VAT adjustment
The Finance Act also addresses employee-related costs in labour outsourcing and employee-placement services.
RSM says these employee-related costs are treated as disbursements and exempted from VAT under the new framework.
The change could affect recruitment firms, labour outsourcing companies and businesses that use such services.
Companies operating in this area will need to review their invoicing and VAT treatment to ensure compliance.
Repossessed collateral receives VAT relief
Another change concerns the repossession of assets used as collateral.
The Finance Act provides a VAT exemption for the repossession of such assets.
This could be relevant to lenders and financial institutions recovering assets after borrowers default on loans.
The change may reduce some of the tax complications associated with the recovery and disposal of collateral.
Some proposed taxes did not survive Parliament
One of the most important points about the Finance Act is that not every measure originally proposed in the Finance Bill became law.
Several controversial proposals were removed before enactment.
These included a proposed tax on mobile phones at activation, a new tax on M-PESA money transfers, excise duty on bottled water and excise duty on locally manufactured plastics.
A proposal concerning tax treatment of imported second-hand clothing was also dropped.
The final law therefore differs from the original Finance Bill that attracted public attention earlier in the year.
No new tax on M-PESA transfers
For millions of Kenyans, the absence of a new M-PESA transfer tax is particularly significant.
President Ruto said after signing the legislation that the Finance Act did not introduce a new tax on M-PESA transfers, airtime or mobile data.
This means fears that ordinary users would face a new Finance Act-related charge every time they transferred money through mobile money were not reflected in the final legislation.
What businesses need to do
Businesses should review their accounting, payroll, invoicing and tax-reporting systems in light of the new law.
Among the areas that may require attention are:
- Updated return-filing timelines.
- Auto-populated KRA returns.
- VAT treatment of specific services.
- Withholding-tax obligations.
- Treatment of bad debts.
- Employee outsourcing costs.
- Historical tax debts.
- Documentation supporting tax deductions.
- Changes to digital tax compliance systems.
Businesses with significant tax exposures may also need professional advice to determine how individual provisions apply to their operations.
What ordinary Kenyans should do
The Finance Act is not only a concern for large companies.
Individual taxpayers should also understand how the new filing system works.
People should regularly check their iTax accounts, confirm that income and tax-credit information is accurate and ensure that outstanding returns are filed within the applicable deadlines.
Those with historical tax debts should also determine whether they qualify for the 2026 amnesty before the December 31 deadline.
KRA has specifically encouraged taxpayers to use its official systems and training resources to understand the new requirements.
Why the Finance Act matters
The Finance Act 2026 is ultimately about more than introducing or removing individual taxes.
It represents another stage in Kenya’s effort to increase domestic revenue collection while making tax administration more digital and data-driven.
The government’s ability to collect sufficient revenue is important for financing public services, infrastructure, salaries and debt obligations.
At the same time, taxpayers and businesses are concerned about the cost of compliance and the broader economic effect of taxation.
The challenge for the government will therefore be to improve compliance without creating unnecessary administrative burdens or discouraging investment.
The new tax environment requires greater awareness
The Finance Act 2026 has already moved from political debate into practical implementation.
With most measures now operational, taxpayers cannot rely solely on information about the Finance Bill as originally presented.
Several proposals changed during the legislative process, while other measures were introduced or refined before the final law was enacted.
The biggest lesson for Kenyans is therefore simple: understand the final law, check your individual obligations and use official KRA information when making tax decisions.
For taxpayers with old debts, the six-month amnesty presents a particularly important opportunity before it expires on December 31, 2026.
For businesses, the new filing, VAT and withholding-tax rules make timely compliance increasingly important.
As Kenya enters the 2026/27 financial year, the Finance Act will play a major role in determining how the government raises revenue—and how individuals and businesses manage their finances under the country’s new tax framework.
