Leigha Grisby
The Finance Act 2026, signed into law by President William Ruto on June 23, 2026, introduces a raft of tax changes effective July 1, 2026, targeting digital payments, non-resident extractive sector taxation, rental income, and prepopulated tax returns Key changes include the expansion of royalty definitions to cover digital payment networks and a new 15% tax rate on repatriated income for non-resident extractive licensees and contractors The changes are expected to increase the cost of digital payments, with higher charges likely to be passed on to consumers through card transactions and mobile money transfers Elijah Ntongai is an experienced editor at TUKO.co.ke, with more than four years in financial, business, labour and technology research and reporting. His work provides valuable insights into Kenyan, African, and global trends.
The Finance Act 2026, signed into law on June 23, 2026, introduces sweeping tax changes effective July 1, 2026, across income tax, withholding tax (WHT), VAT, excise duty, and tax administration.
President William Ruto signed the Finance Act 2026 into law. Photo: William Ruto.
Source: Twitter TABLE OF CONTENTS What are the key income tax changes? Income Tax Changes Withholding Tax Changes VAT Changes Excise Duty Changes Tax Administration Changes What provisions have been deferred to January 1, 2027? The amendments are designed to broaden the tax base, enhance compliance, and align Kenya’s tax framework with emerging digital and economic realities.
However, certain provisions, including income tax filing timeline changes and excise duty reforms on mobile phones, have been deferred to January 1, 2027.
What are the key income tax changes? Below is a summary of the key changes to tax procedures set to take effect on July 1, 2026.
Income Tax Changes Change
Effective Date
1
Deemed dividend rule: 60% of undistributed profits trigger WHT if no dividend declared within 12 months
July 1, 2026
2
Residential rental income WHT rate: 7.5% to 10%
July 1, 2026
3
New Non-Resident Rental Income Tax (NRRIT): 30% on gross rent from immovable property; 15% on movable property
July 1, 2026
4
EAC preferential dividend WHT rate abolished: Standard rate to apply (5% to standard 15%)
July 1, 2026
5
Capital Gains Tax (CGT) on indirect transfers – the 20% threshold has been removed; any non-resident disposal now triggers CGT
July 1, 2026
6
WHT on scrap metal sales (1.5%) and gambling winnings (20%)
July 1, 2026
7
Mitumba import tax — 5% of customs value, payable at port
July 1, 2026
8
The 10% investment deduction is now claimed per year in equal annual instalments rather than upfront, effectively spreading the capital allowance over 10 years
July 1, 2026
9
Non-resident extractive/petroleum sector: 15% repatriated income rate for licensees and contractors; 37.5% to 30% corporate rate
July 1, 2026
Withholding Tax Changes Change
Effective Date
10
The royalty definition expanded to include software, digital platforms, payment networks and card schemes
July 1, 2026
11
The management/professional fee expanded to include interchange and merchant service fees
July 1, 2026
VAT Changes Change
Effective Date
12
VAT exemption on payment processing, settlement, gateway and aggregation services removed (now 16% VAT)
July 1, 2026
13
New VAT exemptions: pharma inputs, animal feed inputs, EVs, batteries, PPP infrastructure, bioethanol stoves, telephones
July 1, 2026
14
VAT input claim window extended from 2 to 3 years
July 1, 2026
15
Doubled penalties (2×) for e-invoice/e-filing failures
July 1, 2026
Excise Duty Changes Change
Effective Date
16
50% excise on antique and vintage motor vehicles
July 1, 2026
17
Increased excise on coal, fruit juices, classic vehicles
July 1, 2026
18
EAC preferential excise exclusion removed for many goods
July 1, 2026
Tax Administration Changes Change
Effective Date
19
New General Anti-Avoidance Rule (GAAR) under the Tax Procedures Act
July 1, 2026
20
KRA empowered to issue data-driven assessments (new Section 29A)
July 1, 2026
21
Prepopulated tax returns — KRA to generate and issue by end of January; taxpayer has 2 months to amend
July 1, 2026
22
Tax amnesty extended: qualifying period to 31 Dec 2025, payment deadline to 31 Dec 2026
July 1, 2026
23
Duty-free traveler threshold raised: USD 300 to USD 2,000
July 1, 2026
24
CGT and stamp duty exemption on property transferred to REITs
July 1, 2026
25
Mandated Virtual Asset Service Provider (VASP) annual information returns with KSh 1 million penalties for non-compliance
July 1, 2026
26
Non-resident shipping tax due within 5 days of payment or ship leaving port
July 1, 2026
What provisions have been deferred to January 1, 2027? Amendments relating to income tax filing timelines (including tax return and self-assessment due dates), adjustments to taxation of non-resident mining contractors and repatriated income, and excise duty reforms on mobile phones take effect from January 1, 2027.
This includes the shortened corporate tax return deadline of 4 months (down from 6 months) and the increased excise duty on telephones to 25% with the tax point shifted to activation.
Source: TUKO.co.ke
Source: Tuko.co.ke | Read the Full Story…
