Kenya’s Finance Bill 2026 proposes a wide-ranging set of amendments across income tax, VAT, withholding tax, excise duty and procedural rules. A consistent theme running through the Bill is the expansion of tax collection within the digital economy, increased taxation of financial and payment services, and broader enforcement powers in relation to cross-border and indirect transactions.
The proposals also continue Kenya’s pattern of frequent tax policy changes in sectors such as betting, fintech and digital payments, creating both commercial and compliance challenges for businesses operating in the market.
We discuss some of the key proposals below.
Withholding Tax Treatment of Payment and Card-Based Fees
A key feature of the draft Bill is the proposed expansion of withholding tax applicability to certain payment-related service fees, particularly within the card payment and electronic transaction ecosystem.
The amendments seek to bring within the scope of withholding tax (depending on classification and contractual structure):
- interchange fees between issuing and acquiring institutions
- merchant service charges
- certain payment processing and card scheme-related fees
This is achieved primarily through the proposed classification of these fees as “management or professional services” for withholding tax purposes, rather than through the introduction of a standalone new tax.
Practical effect
The proposal appears aimed at ensuring more consistent withholding tax collection at source on payment-related service flows, particularly where services are provided by non-resident entities or intermediary service providers.
However, the proposal may also create commercial distortions within the payments sector. In practice, it could favour traditional banking channels over fintech and electronic payment providers by increasing the tax and compliance burden associated with digital payment infrastructure.
The proposal also appears linked to recent litigation in which the Kenya Revenue Authority reportedly failed in attempts to impose withholding tax on certain payment service arrangements. The Finance Bill therefore seems designed, at least in part, to legislatively override that outcome.
Importantly, there is also a related VAT proposal under which certain payment processing and intermediation services would no longer qualify for VAT exemption, increasing the overall tax cost embedded in electronic payment systems.
Digital Payment Services: Tax Treatment Clarification
The Bill reflects a broader policy objective of ensuring that digital payment facilitation services are comprehensively brought within the Kenyan tax net.
This includes clarification of the tax treatment of:
- platform-based payment facilitation services
- electronic transaction processing services
- related financial intermediation service fees
The focus is on taxation of service fees generated within the payment infrastructure, rather than taxation of the underlying transfer of funds between parties.
Practical effect
If enacted, the proposals may lead to:
- broader withholding tax exposure on service fees
- increased compliance obligations for payment intermediaries
- additional VAT costs on previously exempt services
- potential re-pricing of merchant acquiring and payment processing arrangements
For multinational fintech groups and payment service providers, the proposals may also increase the importance of treaty analysis, permanent establishment risk assessments, and careful contractual allocation of services and revenue streams.
Indirect Transfer Provisions: Significant Expansion of Scope
The draft Bill also proposes substantial amendments to Kenya’s indirect transfer rules, aimed at strengthening taxation of offshore disposals involving Kenyan assets.
The amendments appear intended to:
- clarify the scope of taxable indirect transfers
- strengthen valuation and reporting requirements
- reduce structuring uncertainty involving offshore holding structures
However, aspects of the draft wording remain broad and potentially unclear.
The proposed rules may apply where:
- a transaction results in a Kenyan company changing membership within a group
- foreign shares derive value from Kenyan assets (without any clear threshold being specified)
- a transfer results in a change of ownership, title or interest in Kenyan property
The breadth of these concepts may significantly expand the practical reach of the current indirect transfer regime.
Practical effect
The proposals represent a material strengthening of Kenya’s anti-avoidance and source-based taxation framework.
In practice, they may:
- increase tax exposure on offshore share disposals
- broaden reporting and valuation obligations
- increase uncertainty for foreign investors holding Kenyan assets indirectly
- potentially accelerate disposal activity where investors seek to avoid future exposure under a wider regime
The absence of clear valuation thresholds may also create practical difficulties in determining when transactions fall within scope.
REIT Incentives: A Welcome Development
One of the more positive developments in the Bill is the proposal to exempt transfers of property to Real Estate Investment Trusts (REITs) from both capital gains tax and stamp duty.
This is likely to be welcomed by the property and investment sectors and may help stimulate broader use of REIT structures in Kenya.
The proposal aligns Kenya more closely with international REIT frameworks, where tax neutrality on property transfers is often regarded as important to encouraging market participation and improving liquidity in the real estate sector.
Withholding Tax on Rental Income for Non-Residents
The Bill also proposes the introduction or expansion of withholding tax obligations on rental income earned by non-residents, including residential and potentially commercial rental income.
This reflects Kenya’s continued focus on ensuring greater source-based taxation of income generated from Kenyan assets by offshore investors and landlords.
The practical operation of these provisions, including collection obligations and treaty interaction, will require close monitoring as the legislative process develops.
Reduced Corporate and Personal Income Tax Filing Deadlines
Another significant administrative proposal is the reduction of the deadline for filing corporate and personal income tax returns from six months after year-end to four months.
This is likely to create substantial practical pressure for taxpayers, particularly multinational groups and businesses with complex accounting and consolidation processes.
More concerning is the proposal requiring taxpayers intending to file nil returns to do so within one month of year-end. In practice, many taxpayers may not yet be in a position to determine whether no taxable income or liability arises within such a short timeframe.
If implemented without flexibility, these shortened deadlines could materially increase procedural non-compliance risk.
Continued Changes to Betting and Gaming Taxation
Kenya continues its pattern of frequent amendments to the taxation of betting and gaming activities.
The Bill proposes that excise duty be imposed on amounts deposited for betting or gaming purposes, whether in cash or otherwise.
The wording raises several practical questions, including whether so-called “free bets” or promotional credits will fall within scope, given that they may not involve a direct cash deposit.
The proposals would also extend excise duty to horse race betting, which was previously exempt. This may have adverse consequences for the horse racing industry and related stakeholders.
Extension of Tax Amnesty Programme
The Finance Bill also extends Kenya’s tax amnesty programme to 31 December 2025, provided the relevant taxes are paid by 31 December 2026.
This extension provides additional opportunity for taxpayers with historical exposure to regularise positions before enforcement activity intensifies further.
Structuring and Commercial Implications
If enacted broadly in its current form, the Finance Bill could have several significant implications.
Financial services and fintech sector
- increased withholding tax exposure on payment processing and card-related fees
- increased VAT costs within the payments ecosystem
- greater emphasis on contractual classification of service fees
- increased importance of treaty analysis for cross-border payment service providers
Multinational groups
- potential withholding tax leakage on intercompany service and platform charges
- greater scrutiny of cross-border payment flows
- increased documentation and compliance obligations
Investment structures
- heightened scrutiny of offshore disposals involving Kenyan underlying assets
- broader indirect transfer exposure
- increased valuation and reporting requirements
Tax administration and compliance
- compressed filing timelines creating operational pressure
- increased enforcement exposure for businesses with delayed reporting processes
- growing digitalisation and transaction-level visibility for the tax authority
Conclusion
The Kenya Finance Bill 2026 continues a clear policy direction toward.
- expanding tax collection within the digital economy
- strengthening withholding tax collection at source
- increasing scrutiny of cross-border payment and investment structures
- broadening indirect transfer taxation
- accelerating enforcement through tighter compliance timelines and enhanced reporting obligations
Taken together, the proposals signal a more assertive revenue collection environment, particularly for multinational groups, fintech businesses, payment intermediaries and investors with Kenyan exposure.
For businesses operating in or into Kenya, the practical challenge will not simply be understanding the technical amendments, but assessing how these changes interact commercially across payment flows, investment structures, VAT exposure, compliance timelines and cross-border tax positions.
If you would like to assess how the proposed amendments may affect your business, financing structures, digital payment arrangements or cross-border investments into Kenya, contact us today. Early review and proactive restructuring may significantly reduce future compliance and tax exposure.
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