The Bill proposes far-reaching amendments to income tax, VAT, excise duty and tax enforcement laws. A quick analysis points to a major expansion of the tax net into the digital economy, gambling industry, and informal trade.
If approved by MPs, most of the measures will take effect on July 1, 2026, while some digital reporting requirements will start on January 1, 2027.
But even as Treasury seeks to widen the tax net to fund the 2026-27 financial year's Sh4.82 trillion, there are targeted relief measures for kidney patients and donors.
Among the biggest winners are kidney patients. The Treasury has proposed VAT exemptions on dialysers and related medical inputs used in dialysis treatment. The move is expected to lower the cost of renal care, which remains expensive for many patients suffering from chronic kidney disease.
Treasury has also added imported spare parts to the exemptions for vehicles used by donors.
Farmers could face steeper costs of feed and lower earnings on sugarcane.
Currently, inputs for animal feeds and livestock pharmaceutical products enjoy zero-rated VAT status, allowing manufacturers to claim refunds on input taxes.
The Bill proposes reclassifying the items as exempt supplies. Under an exempt regime, manufacturers cannot recover input VAT, meaning embedded taxes will be passed down the supply chain.
The result is higher prices for animal feeds and veterinary medicines—the opposite of a relief. The transportation of sugarcane from farms to milling factories is also being proposed to be VAT-exempt from the current zero-rated regime.
Even so, the gains for patients come alongside aggressive new tax measures targeting other parts of the economy.
Among the key proposals is a new levy targeting mobile phone users. The Bill proposes changes to the Excise Duty Act to shift the point at which excise duty on mobile phones is collected.
Under the proposal, excise duty on phones has been increased from 10 per cent to 25 per cent of the excisable value, and would become payable at the point a device is activated on a mobile network.
The move is expected to hit smugglers and traders dealing in untaxed handsets, disrupting the vast grey market for second-hand and illegally imported smartphones.
Treasury is further proposing changes to the Import Declaration Fee regime by expressly including imported phones among goods subject to the levy.
Treasury has also trained its guns on gambling. The Finance Bill explicitly lists "winnings" from betting, gaming and lotteries as taxable income under the Income Tax Act.
The Bill further retains a 20 per cent withholding tax on winnings, excluding the amount originally staked by the bettor. It redefines excisable betting transactions to include deposits made through chips, tokens, credits and other gaming instruments.
If adopted, the tax will become payable the moment money is converted into betting credits.
Scrap metal dealers have also been brought into the tax net. The Bill introduces a 1.5 per cent withholding tax on the gross value of scrap metal sales and formally classifies scrap metal income as taxable.
In a move likely to affect digital platforms, software providers and foreign payment systems, Treasury is also expanding the definition of 'royalty'. It now includes payments made for the use of software, digital marketplaces, payment gateways and related services.
As a result, businesses using foreign payment platforms or overseas software systems could face withholding tax obligations if the payments are classified as royalties.
The Bill also introduces a new final tax regime for non-residents earning rental income from property located in Kenya.
The proposed Section 6B of the Income Tax Act states that tax paid by non-resident landlords shall be a final tax. The move is expected to simplify tax administration while improving compliance among foreign property owners earning rental income locally.
Kenyans who file tax returns will also face tighter timelines. The deadline for filing annual income tax returns is reduced from six months after the end of the accounting period to four months.
Nil returns will now be required within one month, changes that could put pressure on taxpayers, accountants and businesses to prepare audited accounts and returns much earlier than before.
Another major change targets trusts. Treasury proposes amendments stating that income received by a trustee shall be deemed to be the income of the trustee. However, once tax has been paid at the trustee level, beneficiaries will not be taxed again on distribution.
The Finance Bill also proposes several changes to VAT treatment. One proposal removes the VAT exemption on financial charges in hire purchase agreements, meaning consumers buying goods on credit could end up paying more.
The Bill further extends the period within which businesses can claim VAT relief on bad debts from two years to three years.
Treasury is also reshaping the country's green energy tax incentives. The Bill removes zero-rated VAT status for assembled mobile phones, electric buses and some solar and lithium battery products.
The items would instead be tax-exempt, meaning manufacturers may seek to recover the cost, usually passed to consumers. Renewable energy players and electric mobility firms that had benefited from preferential tax treatment stand affected.
Goods for use in the construction of tourism facilities, recreational parks and conference facilities will also not be tax-exempt. Affordable housing consumables have also been removed from the exempt list.
In the excise duty regime, the Treasury proposes a 5 per cent excise tax on coal and a steep 50 per cent duty on imported antique, vintage or classic vehicles more than 30 years old.
The Bill also raises excise duty on cigars to Sh18,000 per kilogram and tobacco to Sh12,550 per kilogram. Small-scale brewers could also be hit after the Treasury proposed deleting the special lower excise rate previously enjoyed by certain beer manufacturers.
Other proposals relate to crypto assets and digital financial reporting. There are new provisions compelling virtual asset service providers and crypto exchanges to submit information returns to KRA.
The proposed law creates penalties of up to Sh100,000 or imprisonment for up to three years for false reporting.
Treasury is simultaneously seeking clearly defined anti-tax avoidance powers. An amendment to Section 18A of the Tax Procedures Act could see the KRA Commissioner gain authority to disregard any arrangement deemed to have been entered into primarily to avoid tax.
The Commissioner would then be allowed to recompute tax liability 'as if the arrangement had not been entered into'.
Businesses that fail to comply with electronic invoicing rules also face stiffer penalties. The Bill proposes penalties equal to twice the tax due, Sh100,000, or Sh10,000 for individuals, for failure to issue electronic tax invoices.
The share of revenue allocated to a special fund under the import levy would also drop from 20 per cent to 10 per cent. In the property market, the Bill exempts transfers of assets into Real Estate Investment Trusts (REITs) from stamp duty.
It also reduces the allocation from the fuel levy to the Road Annuity Fund from Sh3 to Sh1.50 per litre, a move that would see more fuel levy revenue directed into the exchequer.
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