Kenya: Tax proposals in Finance Bill, 2026 include CbC changes
Changes to income tax, country-by-country reporting (CbC), VAT, and excise duties.
may 15, 2026
Finance Bill, 2026 introduces tax measures aimed at widening the tax base and enhancing compliance to meet revenue targets. The bill includes amendments concerning income tax, country-by-country (CbC) reporting, VAT, and excise duties. Many of the proposed changes are scheduled to become effective on July 1, 2026, or January 1, 2027.
Income tax
- Nonresident rental income: The bill proposes a new tax regime for nonresident persons earning rental income from property in Kenya, imposing a final withholding tax of 30% on gross rent from immovable property and 15% on rent from movable property.
- Withholding tax expansion: The definition of "management or professional fees" would be expanded to include interchange fees and merchant service fees from card-based transactions. Additionally, the definition of "royalty" would be broadened to cover a wide range of payments for software, digital platforms, and payment network services.
- Capital gains on share transfers by nonresidents: The scope of capital gains tax would be expanded to capture gains derived by nonresidents from the disposal of shares that derive their value from Kenyan assets.
- Return filing timelines: The proposal seeks to shorten the deadline for filing income tax returns from six months to four months after the end of the year of income, effective January 1, 2027.
- Taxation of nonresidents in extractive sector: The income tax rate for certain nonresident companies in the extractive sector would be reduced from 37.5% to 30%, with a new 15% tax rate introduced on repatriated income for nonresident licensees and contractors.
Country-by-country (CbC) reporting
- Technical amendments: The bill proposes several technical amendments to clarify CbC reporting obligations, including the definitions of a "Country-by-Country Report" and an "excluded multinational enterprise group."
- New ultimate parent entity (UPE) definition: A new, more detailed definition of an "ultimate parent entity" is proposed to provide greater certainty in identifying the entity within a multinational group that is responsible for filing the CbC report.
- Filing obligations: The proposals aim to better align the statutory references for Master file, Local file, and CbC reporting provisions, clarifying that filing obligations can apply to constituent entities and not just the UPE. The proposed changes would become effective on July 1, 2026.
VAT
- Digital financial services: The bill proposes to subject various digital and platform-based financial services to VAT, including money transfers, payment processing, and gateway services.
- Changes in VAT rates: The bill would remove VAT exemptions and apply the normal VAT rate to several previously exempt sectors, and would exempt previous standard-rated items.
- Bad debt refunds: The period after which a taxpayer can apply for a VAT refund on bad debts is proposed to be increased from two years to three years.
Excise duties
- Expanded scope: Excise duties would be expanded to include services offered by virtual asset service providers. The government also proposes to impose excise duties on various goods imported from East African Community (EAC) partner states.
- Rate changes: Excise duty rates are set to increase for several products, including cigars, certain tobacco products, and fruit juices with added sugar. The rate on telephones for cellular networks is proposed to increase from 10% to 25% of the excisable value.
Tax Procedures Act
- Tax amnesty: The bill proposes to reinstate a tax amnesty on interest, penalties, and fines for tax liabilities, provided the principal tax was settled by December 31, 2025, or is settled by December 31, 2026.
- Agency notices: A proposal involves removing the statutory protection that prevents the Kenya Revenue Authority (KRA) from issuing agency notices to taxpayers who have active appeals before the Tax Appeals Tribunal or courts.
- Virtual asset reporting: Virtual asset service providers would be required to file annual information returns on their users, and the KRA would be empowered to enter into agreements for the automatic exchange of this information with other jurisdictions.
Read a May 2026 report (67 pages) prepared by the KPMG member firm in Kenya