Kenya's President enacted the Finance Act 2026, introducing amendments across multiple tax statutes effective from 1 July 2026 that focus on compliance, fairness and closing tax avoidance loopholes rather than increasing rates.
Kenya’s President has enacted the Finance Act 2026, bringing amendments across multiple tax statutes effective from 1 July 2026.
The Presidential assent was given on 24 June 2025.
The Finance Act, 2026, does not raise taxes. Instead, it improves fairness by strengthening compliance, closing loopholes and ensuring that every individual and business pays what is lawfully due.
The legislation expands VAT exemptions to cover sugarcane transportation from farms to mills and specified electric vehicles, including motorcycles, bicycles and buses. Excise duty rates for certain items have been revised.
A notable provision establishes a six-month tax amnesty running from 1 July to 31 December 2026, during which taxpayers may settle outstanding principal liabilities accrued through 31 December 2025 without incurring penalties or interest, provided full payment is made by year-end.
The amendments affect the Income Tax Act, Value Added Tax Act, Excise Duty Act, Stamp Duty Act, Miscellaneous Fees and Levies Act, and Tax Procedures Act.
Other key highlights of the Finance Act 2026 are:
- Transfer pricing and multinational reporting: Transfer pricing regulations have been strengthened with refined definitions of “ultimate parent entity” to better identify the top-tier constituent of multinational groups. This ensures Country-by-Country reports accurately capture group ownership and close profit-shifting loopholes.
- Corporate tax rates for non-residents: The corporate tax rate for non-resident companies, including petroleum contractors, has been reduced from 37.5% to 30%. A preferential 15% rate applies to repatriated income earned by non-resident mining operations with permanent establishments in Kenya and specific licensees.
- Eliminated tax preferences: Two longstanding preferential treatments have been withdrawn: the 5% withholding tax on dividends to East African Community citizens, and the exemption for national carriers paying non-residents for specialised technical services.
- Expanded definition of royalty: The royalty definition now encompasses payments for digital platforms, payment networks, card schemes, software distribution and related systems, capturing fees for access, participation, usage rights, and transaction-based charges.
- Capital gains tax on non-residents: Non-residents selling shares that derive value from Kenya or trigger changes in group membership of Kenyan-resident companies are now subject to capital gains tax.
- Excise duty on phone activation: A 25% excise duty on cellular and wireless phones applies at the point of activation rather than sale, representing a unique timing mechanism for this tax.
- Luxury goods duties: Antique and classic vehicles over 30 years old valued above KES 10 million face a 50% excise duty. Cigars attract KES 18,000 per kg, while sugar-sweetened juices are taxed at KES 20 per litre.
Earlier, Kenya’s government released the Finance Bill, 2026, proposing amendments across key tax laws, including the Income Tax Act (Cap. 470), VAT Act (Cap. 476), Excise Duty Act (Cap. 472), Stamp Duty Act (Cap. 480), Tax Procedures Act (Cap. 469B), and the Miscellaneous Fees and Levies Act (Cap. 469C).
