13 May 2026 Kenya proposes Finance Bill, 2026
On 30 April 2026, the National Treasury Cabinet Secretary presented the Finance Bill, 2026 (the Bill) to Parliament. Parliament will seek and consider stakeholders and public comments before the Bill becomes an Act. The Bill is presented as a matter of ordinary Fiscal Budgetary course and seeks to amend the various tax laws: the Income Tax Act (ITA), The VAT Act, 2013 (VAT Act), Excise Duty Act, Tax Procedures Act, 2015 (TPA), and the Miscellaneous Fees and Levies Act. The Bill also provides for other miscellaneous amendments to the Stamp Duty Act and the Road Maintenance Levy Fund Act. Once the Finance Bill, 2026, has been subjected to public participation, it will be tabled before Parliament for debate before it is signed into law by end of June 2026. This Tax Alert summarizes the key proposals contained in the Bill. Unless specifically mentioned, the changes contained in this analysis are expected to take effect on 1 July 2026 and 1 January 2027 after assent by the President. The Bill proposes to amend the definition of immovable property by substituting "and" with "or," thus separately defining land and its encumbrances as well as rights over property including mining rights and interests in petroleum agreements. This refinement of the definition of immovable property resolves a long-standing interpretational ambiguity by clearly separating land-based interests from extractive and petroleum rights. The proposal strengthens the statutory basis for taxing income derived from each category independently. The Bill proposes to expand the definition of "management or professional fee" to include interchange fees and merchant service fees arising from transactions that use a card as a means of payment. The amendment seeks to bring such fees paid to an issuing bank into the ambit of withholding tax. The Supreme Court of Kenya recently struck out a bid by the Kenya Revenue Authority (KRA) to demand withholding tax from the these fees on the basis of the current definition of management and professional fees. The Bill proposes to expand the definition of "royalty" to include payments for the use of or access to digital platforms, payment networks and payment processing systems regardless of whether the payment for these services is periodic or transaction based and the contractual description of the fees. The applicability of withholding tax on payments to providers of payment platforms and related services has been subject to prolonged dispute with the KRA losing multiple appeals on the matter. This is an apparent reaction to the rulings with the Government now seeking to introduce a wide and all-encompassing definition that is likely to capture payments for access to digital platforms and payment services providers. In addition, software distribution arrangements involving regular payments through distributors are expressly classified as royalties. This is equally a reactionary proposal following historical tax disputes on the applicability of withholding tax on payments for software made through distributors. The Bill proposes to redefine "withdrawals" from the amount of money withdrawn by a customer from their betting wallet to the amount of money, cash equivalent or money's worth paid or disbursed to the player's account. The amendment seeks to change the tax point for withholding tax purposes from when the player actually withdraws money from his or her account to when the money, cash equivalent or money's worth is paid or disbursed to the account. The proposal seeks to seal a loophole that enabled players to defer the tax point by placing additional bets from the winnings as opposed to withdrawing from their wallet. The Bill proposes to reintroduce a definition of "winnings," which had been repealed by the Finance Act 2025. The proposal seeks to define winnings as a pay-out by a person licensed under the Gambling Control Act, 2025, from a lottery or prize competition under the Gambling Control Act, 2025. The definition excludes amount staked or wagered winnings. The amendment seeks to capture income in the form of winnings from activities classified as lottery or prize competitions that are currently outside the taxation framework. The definition also provides clarity by providing that winnings exclude the staked or wagered amount. Consequently, withholding tax would only apply to the net amount, thus aligning with internationally accepted principles of taxing realized enrichment, while improving administrative clarity for operators and the tax authority alike. The Bill seeks to introduce a self-declaration regime on gross rental income earned by nonresident persons to be known as nonresident rental income tax at the rate of 30% on gross rental income. Nonresident persons who are subject to this tax will be required to register and account for the tax through a simplified registration framework. Further, they will be required to submit a return and pay the tax due by the 20th day of the month following the month on which the rent is paid. The tax does not apply to a resident person (appointed as a rent-withholding tax agent) and who receives rent income on behalf of the nonresident person. Currently, the Income Tax Act (ITA) provides a withholding tax regime on rental payments to nonresident persons. The proposal seeks to introduce a self-declaration regime in addition to the existing withholding tax regime. The Bill proposes to introduce a specific timeframe for payment of taxes on income received by nonresident shipowners, charterers or air transport operators to the earlier of five days after receipt of payment of such income or when the ship leaves the port of landing. Currently, income of a nonresident shipowner is withheld by the payer through a withholding tax regime. The Bill is seeking to repeal the enabling section that mandated withholding tax on the business income of a ship owner or charterer. This implies that it will be the responsibility of nonresident ship owners to make a self-assessment and declare the same to the KRA. Income accrued from Kenya by nonresident ship owners is subject to income tax at the rate of 2.5% of the gross income. The Bill proposes to introduce withholding tax on winnings at the rate of 20% for both resident and nonresident persons. The Tax Laws (Amendment) Act, 2018 introduced withholding tax on winnings, but this was repealed by the Finance Act, 2025, which also introduced the withholding tax on withdrawals limited to operations involved in gaming. The reintroduction of winnings seeks to capture operations that are classified under lotteries and prize competitions. The Finance Act, 2025 also repealed withholding tax on sale of scrap metal, which had been introduced by the Tax Laws (Amendment) Act 2024. The Bill seeks to reintroduce withholding tax on sale of scrap metal at the rate of 1.5% for both resident persons and nonresident persons. Family trusts have gained prominence following the introduction of several tax incentives and a regulatory framework a few years ago. The Bill seeks to streamline the taxation framework of trusts. The Bill provides that income received by a trustee in their capacity as trustee, executor or administrator shall be deemed to be income of the trustee. Additionally, the Bill provides that dividends or interest included therein shall be exempted from further taxation. The Bill also provides that if trust income has been subjected to tax on the executor/administrator, the beneficiaries will not be subject to further income tax. The proposal provides clarity on the taxation of trust income and prevents double taxation at both trustee and beneficiary levels. The Bill seeks to introduce a new provision that exempts taxpayers whose sole income is emoluments from paying instalment tax. Currently, natural persons whose sole income is from employment do not pay instalment tax since income tax on their emoluments is deducted at source by the employers. Non-deposit-taking institutions engaged in lending and leasing business are exempt from interest expense exemption rules. The Bill seeks to separate the lending and leasing business thus allowing non-deposit-taking institutions undertaking either or both activities to be excluded from interest expense restriction rules. Leasing has exponentially grown in the Kenyan market, driven by Government leasing programs particularly on motor vehicles. The proposal will therefore shield those who play the role of a lessor without necessarily being the financiers of the leasing transactions or the vice versa. The Bill seeks to amend the definition of Ultimate Parent Entity (UPE) to align it with the definition as provided in the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. The proposed definition expressly provides that a UPE is an entity that is required to prepare consolidated financial statements or would be required to prepare consolidated financial statements if its shares were traded on a traded publicly on a securities exchange. The Bill seeks to amend Section 19 of the Income Tax Act by substituting the term "life insurance fund" with the term "statutory fund." The Bill has also proposes to amend the definition of annuity fund by substituting the term "life insurance fund" with "statutory fund." The proposal aligns the taxation framework of long-term insurance funds to transfers from the statutory fund as defined by the Insurance Act. This would imply that dealings involving non-statutory funds would thus be taxable under the ordinary tax regime. The Bill proposes to repeal the existing section 23 of the ITA, which empowers the KRA to make presumptions on taxpayers' transactions that are structured for the purpose of avoiding tax and make adjustments on their tax liability. This is a clean-up provision, as the tax anti-avoidance rules are comprehensively provided under the Tax Procedures Act (TPA). The law currently empowers the KRA to deem a dividend distribution if an entity fails to distribute dividends within 12 months after the end of the year of income. As a result, withholding tax is demanded on the deemed dividend distribution. The Bill seeks to introduce a minimum limit of 60% on the amount of dividends that the KRA can deem as distributed for income tax purposes. The Finance Act, 2025 introduced an exemption from withholding tax on payments made by a national carrier to nonresident persons for specialized technical, maintenance, compliance, training or digital systems support services not available in Kenya. The Bill proposes to repeal the exemption just one year after its introduction. If the change is enacted into law, such payments to nonresident persons would be subject to withholding tax at the standard nonresident withholding tax rates, unless otherwise provided by a Double Tax Agreement. The Bill proposes to amend sections 52 and 52B of the ITA by changing the due date for income tax return filing from the last day of the sixth month to the last day of the fourth month after the accounting year end. Additionally, for persons with a nil amount of tax payable, the return would be due within one month following the year of income to which the return relates. The proposed changes significantly compress income tax compliance timelines. The amendment appears to be an attempt to align the timeline for payment of balance of tax with the filing of the return. Tax exemption of gains arising from transfer of property to a registered real estate investment trust There has been notable growth in the number of real estate investment trusts (REITs) in the Kenyan market, in addition to growing interest by other interested parties. The Bill seeks to amend Part 1 of the First Schedule to the ITA by exempting from income tax any capital gains arising from the transfer of property to a REIT registered by the Commissioner under Section 20 of the ITA. Currently, the ITA exempts registered REITs from income tax. The Bill proposes to amend Paragraph 1(1) (a) (viii) of the Second Schedule to the ITA by clarifying that investment allowances on industrial buildings of 10% shall be claimed per year of income in equal instalments. The proposal would correct a drafting gap that did not specify how the investment allowance provided in the law on qualifying industrial buildings should be claimed for income tax purposes. The Bill proposes to delete subparagraph 2 (i) of the Third Schedule to the ITA, which provides a reduced corporate income tax (CIT) rate of 15% for companies engaged in the construction of at least 100 residential units per year of income, subject to approval by the Cabinet Secretary in charge of Housing. If enacted, these developers will be subject to the standard CIT rate of 30%. The Bill proposes to delete the proviso to Paragraph 3 (d) of Head B of the Third Schedule to the ITA that provides a reduced withholding tax rate of 5% on dividend payments to citizens of East African Community (EAC) partner states. This proposal might stem from an absence of reciprocal mechanisms from other EAC partner states. The Bill seeks to amend Part 2 of the Eighth Schedule to the ITA by introducing a provision that brings into the ambit of capital gains tax income arising from alienation of shares by a nonresident person if the shares derive their value from Kenya or the alienation results in change of the group membership of a company resident in Kenya or ownership of, title in or interest in property located in Kenya. Currently, capital gains tax applies to: (1) gains from selling shares or comparable interests that derive at least 20% of their value directly or indirectly from Kenyan immovable property, and (2) gains from selling shares through which the seller directly or indirectly held at least 20% of the company's capital. The proposed amendment on the taxation of gains arising from sales of shares by a nonresident person does not provide any shareholding or control-related thresholds. This implies that any gains arising from alienation of shares by a nonresident person will be subject to capital gains tax. The Bill seeks to amend the Ninth Schedule to the ITA by introducing 15% repatriation tax on income earned in Kenya by nonresident persons operating under a mining license or holding a mining right. The Bill further proposes to extend the 15% repatriation tax to nonresident contractors operating in the petroleum industry. The Bill also proposes to align the CIT rate applicable to nonresident persons operating in the extractive industries by reducing the rate from 37.5% to 30%, consistent with the CIT rate applicable to persons operating in other sectors. The introduction of a repatriation tax aligns with section 7B of the ITA which requires nonresident persons carrying on business in Kenya through a permanent establishment to pay repatriation tax at 15%, computed by reference to the movement in the net assets of the permanent establishment. The proposed amendments seek to promote tax neutrality and ensure fairness and equity by aligning the tax treatment of nonresident persons (permanent establishments) with that of subsidiaries (resident entities) across all sectors. The Bill seeks to amend Section 5(4) of the ITA by providing circumstances under which gratuity income does not constitute gains or profits from employment. Based on the proposal, gratuity paid to a registered pension scheme for an employee whose contract of service was for a continuous period of at least three years has been listed as a nontaxable gain or profit from employment. Further, the Bill seeks to provide that any contribution to a gratuity in respect of employment or services rendered shall be exempt from tax if these conditions are met:
This proposal is welcome because it provides clarity on the tax treatment of gratuity. Further, it is expected to cushion employees' retirement savings and end-of-service benefits by setting clear conditions for exemption from income tax. The Bill proposes to allow a deduction of interest on loan issued by the Central Bank of Kenya (CBK) to an employee toward the construction, purchase or improvement of property occupied by an employee subject to maximum of 360,000 Kenyan shillings (KES360k) per year. The proposal aims to give CBK employees an interest deduction on qualifying facilities granted by CBK. Currently, CBK is not listed among the eligible lending institutions whose loan facilities enjoy the mortgage interest deduction. The Bill proposes to amend Paragraph 53 of the First Schedule to the ITA by seeking to exempt from income tax, benefits received as a result of death from registered pension fund, registered provident fund, registered individual retirement fund, public pension scheme or National Social Security Fund. This is a welcome proposal given that it seeks to cushion from income tax the amounts that are due to the beneficiaries/estate of a deceased person. The Bill proposes to introduce a requirement for VASPs to file annual information returns with the KRA. It also creates an offense for a VASP who falsifies information in a return or fails to file a return, including a nil return. This provision adds to the existing requirement that all licensed VASPs submit Audited Financial Statements (AFS) to the relevant regulatory authorities specified under the Virtual Asset Service Providers Act. The Bill also proposes to introduce a framework allowing Kenya to enter into agreements with other countries for the automatic exchange of information relating to virtual asset transactions. The recent introduction of the VASP Act in 2025, draft regulations and the proposed changes signals Kenya's move from regulating virtual assets purely from a licensing and anti-money laundering perspective to a fully integrated regime covering supervision, taxation and cross-border information exchange. The Bill proposes an amendment to section 10 of the TPA introducing a mechanism for the reinstatement of persons who were previously deregistered but subsequently qualify for registration as taxpayers. Such a person will be required to apply to the KRA for reinstatement and, if the KRA is satisfied that the person is again liable for tax, the KRA shall register the person and reinstate the same PIN that had been issued prior to deregistration. This change addresses a gap in the current framework by clarifying the procedure for reregistration for tax purposes. The Bill proposes to exempt a nonresident person who wishes to open an account with an Investment Bank from the requirement to obtain a PIN. The First Schedule to the ITA includes opening of accounts with financial institutions and investment banks as one of the activities requiring a PIN in Kenya. This proposal eases the process of onboarding nonresident person seeking to make investments in the country through investment banks.
These proposals are aimed at broadening the powers that the KRA may exercise in enhancing compliance and curtailing tax avoidance schemes. This also signals an intention to broaden KRA's powers in obtaining information from varied sources including from other government agencies.
The tax amnesty allows taxpayers an opportunity to voluntarily disclose unpaid taxes, enter structured payment plans, and reduce exposure to penalties and interest. The Finance Bill proposes to delete section 39A(2) of the TPA, which currently relieves a withholding agent from liability for principal tax if the income recipient has accounted for the tax. The deletion introduces a stricter enforcement regime by making withholding agents fully liable for the principal tax, penalties and interest, regardless of whether the tax has already been paid by the recipient, thereby increasing compliance risk and the potential for economic double taxation. The Bill proposes to delete TPA section 42 (14) (e), which currently prohibits the KRA from issuing an enforcement notice unless a taxpayer has not appealed against an assessment following a decision of the Tribunal or court. The removal of the paragraph may result in an unintended consequence because the KRA may issue enforcement notices even if a taxpayer has appealed for a judgment at the Tribunal or court.
The proposals are aimed at legitimizing the use of the electronic tax system in enhancing tax compliance while balancing KRA's powers in enforcing compliance with the system. The Bill excludes the mandatory requirement to present a Certificate of Origin in the clearance of imports, meaning that taxpayers would not be required to provide certificates of origin when clearing imports. This proposal is likely to streamline importation processes by reducing documentation requirements and administrative bottlenecks at the point of entry. This change is expected to enhance trade facilitation by accelerating customs clearance timelines and lowering compliance costs for importers. The Bill would also exclude the provision allowing taxpayers to offset overpaid taxes against VAT on imports. The provision had been introduced by the Finance Act, 2025 but was not implemented in practice. The Bill would include weekends and public holidays in the computation of the period for lodging objections and appeals, meaning that calendar days will be used in the computation of time. This change reduces the number of effective working days within statutory timelines, thereby increasing the risk of noncompliance, particularly if deadlines fall shortly after weekends or public holidays. From a practical standpoint, taxpayers and their advisors will be required to adopt more proactive and time-sensitive dispute management processes, as delays that would previously have been absorbed by non-working days will now count toward statutory deadlines. Therefore, the amendment is likely to heighten compliance pressure, necessitate earlier preparation of objection and appeal documentation and increase the likelihood of disputes being rendered time-barred if timelines are not strictly followed. Overall, the proposal strengthens administrative efficiency from the revenue authority's perspective but imposes a stricter compliance regime on taxpayers by compressing the effective period available to respond to tax assessments and decisions. Exclusion of financial charges from taxable value under Licensed/Registered Hire Purchase Transactions The Bill proposes to only exclude financial charges from the value of a taxable supply under hire purchase (HP) transactions in which the supplier of goods is licensed and the HP agreement is registered under the Hire Purchase Act. The implication is that for businesses conducting unlicensed/unregistered HP transactions, any financial charges will be regarded as consideration (taxable value) of the supply of the goods and therefore subject to VAT. The Bill proposes to introduce a new section 17A to the VAT Act requiring registered persons to make an input tax adjustment if taxable supplies subsequently become exempt while still unsold. In such circumstances, any input VAT previously deducted in relation to those unsold supplies must be accounted for in the VAT return for the period in which the supplies became exempt, using the same apportionment or deduction method that was applied when the input tax was originally claimed. The implication is that businesses will be required to reverse and pay back input VAT previously claimed on stock or supplies that remain unsold at the point that VAT status of the supplies change from taxable to exempt. By accounting for the input tax claimed, the business must declare the amount as VAT payable and remit it to the Commissioner, even though no output VAT has been charged to a customer. This may result in an immediate cash flow impact for affected businesses, particularly those holding significant inventory at the time of exemption, heightening the need for robust inventory tracking and VAT status monitoring to manage compliance risk. Finance Act 2025 amended section 31 to allow taxpayers to apply for VAT on bad debts if the invoices remain unpaid for two years from the date of the supply. Finance Bill 2026 seeks to amend the period from two years to three years from the date of the supply to reverse the Finance Act 2025 amendment. This indicates that businesses will have to wait longer before applying for refunds of VAT paid on bad debts, which may increase cash flow pressure if customers default. The Bill proposes to amend Section 42 of the VAT Act to broaden the requirement to issue a tax invoice to include all persons and to restrict the issuance of invoices purporting to show VAT for taxable supplies only. This proposal aims to increase compliance for informal suppliers who may not be registered for VAT as well as prevent tax leakage on "Artificial" VAT charged on nontaxable supplies. The Bill seeks to repeal Section 66 of the VAT Act, which addresses tax avoidance schemes and associated tax liabilities. As a result, the Commissioner will rely on the provisions of the Tax Procedures Act, which provide a general framework for addressing tax avoidance and prescribe the applicable penalties. The Bill proposes to increase the tax-free allowance on value of goods imported by a returning travelers from US$300 (approximately KES39k) to US$2k (approximately KES260k) on applicable goods subject to applicable conditions under Paragraph 99, Part 1 of the First Schedule to the VAT Act The proposal aims to ease the additional tax burden on returning passengers as a result of the increasing cost of living in the country. Clarification on VAT treatment of financial services provided over a digital platform/by payment service provider The Bill proposes to amend paragraph 1, Part II of the First Schedule of the VAT Act to exclude, as exempt financial services, certain services (i.e., money transfers, payment processing, settlement, merchants acquiring, gateway or aggregation services) supplied through software or over a platform by a payment service provider for a fee or commission. This implies that fees/commissions charged on financial services provided/supplied over a digital platform by a payment service provider are subject to VAT at standard rate (16%). The proposal is aimed at bringing certain financial services by fintechs and payment service providers under VAT scope. The proposal also follows recent litigation in which several fintechs prevailed against the tax authority. The most notable decision was in Pesapal Limited v. Commissioner of Domestic Taxes in which the High Court ruled that the services of payment service providers are not technology fees but financial services exempted from VAT. (See EY Global Tax Alert, Kenya High Court rules commissions received by payment service provider was VAT exempt, dated 21 November 2025.) The Bill proposes to clarify the extent of the exemption on services of tour operators by introducing the definition of "tour operator" and "inhouse supplies" as follows:
Note: Most of above proposed changes are expected to take effect from 1 July 2026, except the repeal of definitions of assessment, information technology and tax computerized system; also, exemption on the supply of imported or locally purchased telephones for cellular networks and other wireless networks will take effect from 1 January 2027. The Finance Bill 2026 proposes to redefine antique, vintage and classic vehicles for excise duty purposes as motor vehicles first registered at least 30 years before purchase and valued at KES10m or more. An ad valorem excise duty rate of 50% is proposed to apply to this category. The new excise treatment takes effect from 1 July 2026, increasing the tax burden on high-value collectible vehicles. Timing of liability for excise duty on locally purchased or imported telephones for cellular and other wireless networks The Bill introduces a fundamental shift in the taxation of mobile phones (HS 8517), effective 1 January 2027, by moving the excise duty tax point from importation or manufacture to the activation of the device on a network, effectively transitioning excise duty to a usage-based model that links taxation to actual market consumption. Though this approach may strengthen revenue assurance, it will require close operational coordination between telecom operators, importers, manufacturers and the KRA. The proposal also raises several unresolved implementation issues, including deterimining primary tax responsibility, the mechanism for tracking and reconciling device activations and the treatment of dormant or exported devices. In this context, the regulations to be issued by the Cabinet Secretary will be critical in providing clarity and ensuring the operational viability of the proposed framework PART I, Excisable goods: The Bill proposes revised excise duty rates for various goods, including the following. Currently, excise duty is levied at 10% on mobile phones only. The Finance Bill 2026 proposes to expand the scope to include telephones for cellular networks and other wireless networks. This expansion aligns the excise framework with tariff heading 8517. Overall, the measure broadens the tax base and significantly raises excise duty on communication devices. Currently all unfermented fruit (including grape) and vegetable juices attract excise duty at KES14.14 per litre. Fruit juices (including grape must) and vegetable juices containing added sugar or sweetening matter will now attract KES20 per liter. This represents an upward adjustment in the specific excise rate applicable to sugar-sweetened juices. Overall, the change signals a return to excise on juices, with a higher penalty for sugar-sweetened products. Currently, excise duty at KES6.41 per liter is applied to bottled or similarly packaged waters and other nonalcoholic beverages, excluding fruit and vegetable juices. The Bill 2026 proposes to remove the explicit reference to "bottled or similarly packaged waters and other" from the excisable description. The excisable item is streamlined to "non-alcoholic beverages, not including fruit or vegetable juices." Under this revised wording, bottled or similarly packaged water continues to be subject to excise duty, now falling within the broader nonalcoholic beverages category. The amendment clarifies and consolidates excise duty coverage, while fruit and vegetable juices are addressed under separate provisions. Currently, beer, cider, perry, mead, opaque beer and related low-alcohol beverages (not exceeding 6%) are taxed at KES22.50 per centiliter of pure alcohol, with a reduced rate of KES10 for small independent brewers. The Finance Bill 2026 removes this preferential treatment and applies a uniform rate of KES22.50 per centiliter of pure alcohol to all brewers. This standardization eliminates excise relief for small-scale brewers and increases their excise duty burden. Excise duty on undenatured extra neutral alcohol exceeding 90%, when purchased by licensed spirit manufacturers, is reduced from KES500 to KES80. The reduction in excise duty on extra neutral alcohol lowers input excise costs for licensed manufacturers, which is expected to reduce downstream excise-driven production costs on finished spirituous beverages. The Finance Bill 2026 proposes upward adjustments to excise duty rates on cigars and other manufactured tobacco products. Under the proposal, excise duty on cigars, cheroots and cigarillos containing tobacco or tobacco substitutes would increase from KES16,260.29 per kg to KES18,000 per kg. Similarly, excise duty on manufactured tobacco substitutes, homogenous and reconstituted tobacco, tobacco extracts and essences would increase from KES11,382.48 per kg to KES12,550 per kg. By replacing customs value with excisable value and deleting the specific rate, the Finance Bill 2026 seeks to shift excise duty to a purely ad valorem basis. This change aligns the excise valuation base with the Excise Duty Act framework, reducing reliance on weight-based taxation. The removal of the specific rate may increase excise exposure for higher-value imports, particularly premium ceramic sanitary fixtures. Overall, the amendment simplifies excise administration but heightens the importance of accurate excisable value declarations. The Bill 2026 proposes to amend the excise duty framework for imported ceramic flags, paving, hearth or wall tiles, and unglazed ceramic mosaic tiles under tariff heading 6907. Currently, these products are subject to excise duty at 5% of the customs value or KES300 per square meter, whichever is higher. The proposed amendment would subject the products to excise tax at 5% of the excisable value only, removing the specific rate of KES300 per square meter. This change shifts the excise regime to a purely ad valorem basis, eliminating the minimum specific-duty threshold. As a result, excise duty exposure may decrease for lower-value imports, but a greater emphasis would be placed on accurate excisable value declaration.
PART II, Excisable services: The Bill proposes the following changes in the description of various excisable services. The Bill revises the basis for charging excise duty on betting services by shifting from amounts deposited into a customer's betting wallet to amounts deposited for betting purposes, while retaining the excise duty rate of 5% and the exclusion for horse racing. The proposal broadens the excise duty tax base by focusing on substance rather than wallet mechanics and reduces structuring opportunities previously used to avoid excise duty. The excise duty on gaming services remains at 5%, but the Bill replaces the wallet-based charging mechanism with a charge on amounts deposited for gambling purposes, regardless of whether the funds are held in a gaming wallet. The proposal expands the scope of transactions subject to excise duty, enhances certainty by aligning taxation with economic reality rather than system design, and could increase compliance and operational costs for gaming operators. The Bill clarifies that an excise duty at the rate of 10% is to be charged on fees charged on virtual asset transactions by virtual asset service providers, bringing virtual assets within the excise duty regime for the first time. This change would integrate virtual assets into Kenya's indirect tax framework, align excise duty legislation with the Virtual Asset Service Providers Act, 2025 and increase The Bill proposes to reduce from 20% to 10% the portion of Import Declaration Fees (IDF) allocated to a fund established and managed in accordance with the Public Finance Management framework. Additionally, the Bill would restrict the use of IDF for Kenya's contribution to African Union and other international organizations by removing the clause on contributions for revenue enforcement initiatives. The proposal seeks to strengthen Kenya's commitment and participation in international communities enhancing multilateral ties Originally, the Act provided that the provisions of the East African Community Customs Management Act, 2004 (EACCMA) relating to valuation of imported goods, collection and enforcement of duty applied only for purposes of assessing, collecting and enforcing the IDF, Railway Development Levy (RDL) and Export Levy. The Bill now proposes to expand this scope by providing that the same EACCMA provisions shall apply to the assessment, collection and enforcement of all fees and levies imposed under Part III, including the IDF, RDL, Export Investment and Promotion Levy, anti-adulteration levy and processing fees on duty-free motor vehicles, where applicable. The Bill Seeks to amend Second schedule of the Miscellaneous fees and Levies to restrict exemption of certain goods from IDF and RDF by narrowing the scope exemption available to aircraft-related imports. Currently, aircrafts, spacecrafts and their related parts falling under tariff heading 88 are exempt from both IDF and RDL. This broad exemption coverd a wide range of aircraft, spacecraft and related parts imported into the country. Under the proposed amendment, the exemption will now be restricted to only the following tariff codes:
This means that aircraft parts, spacecraft and other items previously covered under tariff heading 88 but not falling within the above tariff codes will no longer qualify for exemption from IDF and RDL. If enacted, the amendment will increase the cost of importing aircraft parts, spacecraft equipment and other aircraft previously exempt under tariff heading 88 but now excluded from the exemption. This is likely to increase operational and maintenance costs for airlines, aviation service providers and related businesses, which may ultimately be passed on to consumers through higher air transport and cargo charges. Although the change may generate additional revenue for the government through IDF and RDL collections, it could also discourage investment in the aviation sector by making the acquisition and maintenance of aircraft more expensive. Expansion in scope of IDF and RDF exemptions - telephones for cellular and other wireless networks (effective 1 January 2027) The Bill proposes to exempt the importation of telephones designed for cellular networks and other wireless networks from IDF and RDF. This exemption is expected to reduce the cost of importing mobile phones and other wireless communication devices, which may lower retail prices for consumers and improve access to affordable communication technology. The Bill proposes to amend section 96A of the Stamp Duty Act regarding an exemption on transfers relating to REITs. The change would exempt from stamp duty the conveyance or transfer of a beneficial interest in property from a person or persons to a REIT. This amendment effectively broadens the scope of the stamp duty exemption by expressly covering transfers of beneficial interests in property to REITs. At present, the exemption applicable to REIT transactions lapsed on 31 December 2022. The proposed change would therefore reinstate the position that applied prior to that date. This proposal was largely driven by stakeholders seeking to boost liquidity and funding in the real estate sector. This is expected to reduce transaction costs for businesses utilizing REIT structures to hold or restructure real estate assets, thereby enhancing the tax efficiency and commercial attractiveness of REITs. Consequently, the amendment seeks to promote increased participation by property owners and investors in the real estate and capital markets sectors.
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