IN SHORT: Kenya’s Finance Bill 2026, submitted to Parliament on April 30, proposes to end Kenya Airways’ withholding tax exemption on overseas technical and maintenance payments, impose a 25% excise duty on smartphones, extend the definition of taxable royalties to cover payment card systems and digital platforms, introduce a new 5% tax on mitumba imports, and require crypto exchanges to file annual user transaction reports with the KRA. Finance CS John Mbadi has committed to no new tax rates, framing the bill as a compliance and enforcement overhaul rather than a rate increase.
Kenya’s Finance Bill 2026 targets the digital economy, aviation, fintech and informal trade with a sweeping set of structural tax changes designed to broaden the revenue base without repeating the politically explosive rate increases that triggered nationwide protests and the withdrawal of the entire 2024 Finance Bill.
The bill was submitted to Parliament on April 30. Treasury CS John Mbadi appeared before the National Assembly’s Budget and Appropriations Committee in March 2026 and explicitly committed to avoiding new tax rates, describing the 2024 Finance Bill trauma as a lesson learned. The 2026 approach is enforcement-first, compliance-driven, and structurally far-reaching.
- At the centre of the bill is an amendment to Section 35 of the Income Tax Act deleting Paragraph 1(lii), which has provided Kenya Airways with a withholding tax exemption on payments to non-resident service providers for specialised technical, maintenance, compliance, training and digital systems support. Its removal exposes KQ to additional withholding tax costs on essential overseas technical partnerships, including aircraft maintenance systems, aviation software and internationally accredited training. For an airline already financially fragile and competing in a market disrupted by the Hormuz oil shock, the timing is particularly challenging.
- The redefinition of “royalty” is the measure with the broadest financial sector impact. The bill extends the term to cover not just traditional intellectual property but also proprietary digital platforms, payment card systems, payment processing systems, switching systems, clearing systems and settlement systems, regardless of whether payments are made regularly or per transaction. This directly hits the interchange and merchant service fee flows that underpin Kenya’s cashless payment infrastructure, imposing withholding tax on transactions that currently flow untaxed. Fintechs, card networks, banks and digital commerce operators are all in scope.
- The smartphone excise measure is levied at 25% and charged at the point of device activation rather than import. Kenya has one of Africa’s most advanced mobile money ecosystems, and smartphone penetration is central to that infrastructure. A 25% excise at activation raises the effective cost of entry to the digital economy for lower-income consumers and could slow device adoption in price-sensitive segments.
- The mitumba tax introduces a new Section 12H into the Income Tax Act, imposing a 5% levy at the customs value of imported worn clothing, footwear and other worn articles under tariff heading 6309. Mitumba is one of Kenya’s largest informal value chains and a critical source of affordable clothing for lower-income households. The measure is expected to draw significant pushback from traders and consumer advocacy groups.
- Crypto and virtual asset regulation enters the formal tax framework for the first time. Virtual asset service providers, including exchanges and trading platforms, will be required to file annual information returns with the KRA disclosing user and transaction details. Kenya will be permitted to enter international information-sharing agreements for automatic exchange of virtual asset data. False information filings face fines up to KSh100,000 or imprisonment; failure to file attracts penalties up to KSh1 million.
- The KRA receives expanded anti-avoidance powers allowing it to treat arrangements primarily designed for tax advantage as if they had never been entered into and to issue revised assessments within five years. This is a structurally significant enforcement expansion that goes beyond normal audit powers.
- The bill also extends VAT exemptions to dialyzers, scrap metal, animal feed inputs, pharmaceutical raw materials, sugarcane transport, electric bicycles, solar batteries, motorcycles and imported telecoms equipment for network operators, a package of targeted relief intended to lower costs in health, agriculture, manufacturing and clean energy.
Serrari Group analysts described the approach as a “compliance-driven revenue strategy” aligned with the IMF’s endorsement of Kenya’s medium-term fiscal framework, noting that digital enforcement tends to capture already-compliant formal businesses more readily than genuinely informal operators.
The Bigger Picture: Kenya’s Finance Bill 2026 is what happens when a government is desperate for revenue but politically prohibited from raising rates. The 2024 protest movement changed the political economy of Kenyan tax policy fundamentally. Mbadi is not wrong that Kenya needs more revenue. The question is whether expanding the definition of royalties to cover payment systems and removing KQ’s tax shield achieves the revenue target without damaging the fintech ecosystem and airline that have become genuine national assets. Both measures carry real economic downside risk. Parliament’s scrutiny of this bill will be intense, and the fintech sector in particular will mount a significant response to the royalty redefinition.
Source: Capital FM / Kenyans.co.ke / Serrari Group, May 4, 2026
