Tax briefing at a corporate meeting. /AI ILLUSTRATION
The first batch of measures contained in the Finance Act 2026 took effect on Wednesday, July 1, marking the start of the 2026–27 financial year.
The measures, assented to by President William Ruto on June 23, are intended to enhance domestic revenue collection by expanding the tax base, strengthening tax administration, improving compliance and tightening anti-avoidance measures.
Among the key changes taking effect are amendments to the Income Tax Act introducing prepopulated tax returns.
The new provision empowers the Kenya Revenue Authority (KRA) to generate tax returns on behalf of taxpayers using third-party data sources such as payroll records and the electronic Tax Invoice Management System (eTIMS).
Under the law, KRA will first notify taxpayers of their legal obligation to file returns before the new January 31 deadline.
If they fail to do so, the authority will proceed to prepopulate the tax returns on their behalf.
Taxpayers will then have two months from the date of the notification to review the prepopulated returns and make any necessary amendments.
The review window allows businesses and individuals to account for financial costs, tax adjustments or allowable deductions that may not have been captured through official electronic records.
Previously, June 30 was the deadline for filing tax returns, with a violation attracting interest and penalties.
This allowed tax avoidants who were determined not to pay to get away lightly whilst costing KRA deserved revenue.
The Finance Act 2026 also revises the tax regime for non-resident companies operating in the extractive and petroleum sectors.
Paragraph 7(3)(b) of the Ninth Schedule in particular reduces the income tax rate for non-resident companies in the two sectors from 37.5 per cent to 30 per cent.
However, the Act also introduces a 15 per cent tax on repatriated income for non-resident licensees and contractors in a move aimed at standardising the taxation of profits remitted outside the country.
The revised framework aligns more closely with the 30 per cent corporate income tax paid by resident companies on taxable profits and may improve Kenya's competitiveness in attracting foreign investment into the extractive and petroleum industries.
The Finance Act also introduces new taxes affecting digital payment systems, including card-based transactions, which were previously exempt from some of these charges.
It expands the definition of "management or professional fees" to include merchant service fees arising from card payment transactions.
In addition, amendments to the Value Added Tax (VAT) Act impose 16 per cent VAT on payment and money transfer services provided by payment service providers.
The affected services include payment processing, settlement, aggregation services and payment gateway services.
A payment gateway is the secure technology that captures and encrypts a customer's payment details at checkout before transmitting them to payment processors and banks for authorisation and settlement.
Aggregation services involve collecting and consolidating transaction data from multiple sources, such as banks and merchants, into a single centralised platform.
The new framework also requires businesses to deduct 16 per cent withholding tax on payments of interchange fees, merchant service fees and network fees made to digital payment platform providers.
Industry players may pass some of these additional costs on to consumers, potentially increasing the cost of transactions such as purchasing concert tickets and other services commonly paid for through digital payment platforms.
The Act further broadens the definition of "royalty" for purposes of levying taxes, to include payments made for the use of a proprietary card network or platform, regardless of whether the payment is described as a service fee, transaction fee, network fee, assessment fee, processing fee or any similar charge.
