Every year, the Finance Bill attracts attention for one simple reason. It determines how the government intends to raise revenue and how that decision will affect businesses, investors, employers, and households.
The Finance Bill 2026 takes a slightly different approach from some of the more controversial proposals seen in recent years. Instead of introducing sweeping new taxes across the board, the Bill focuses heavily on tightening compliance, expanding the tax base, improving enforcement, and bringing previously under-taxed sectors into the formal tax system.
While some anticipated relief measures did not make it into the final draft, the Bill also avoids several broad tax proposals that many businesses had feared. The result is a package that seeks to increase government revenue while maintaining a degree of economic stability.
Landlords Face Higher Rental Tax
Among the most direct changes affecting property owners is the proposed increase in Monthly Rental Income (MRI) tax.
The Bill seeks to raise the tax rate from 7.5 percent to 10 percent of gross rental income for landlords operating under the simplified rental tax regime. Because the tax is applied on gross income rather than profit, landlords cannot deduct expenses such as maintenance, repairs, security, or loan repayments before taxation.
For property investors, the increase is likely to reduce net rental returns. Some industry observers believe landlords may attempt to offset the additional cost through rent adjustments, although market conditions will ultimately determine whether that becomes possible.
KRA Wants Faster Tax Return Filing
The Bill also proposes significant changes to tax return deadlines.
Currently, many taxpayers have up to six months after the end of their financial year to submit income tax returns. Under the proposed changes, returns would need to be filed by the end of the fourth month after the close of the year. Taxpayers with nil tax liability would face even shorter timelines.
For businesses, accountants, and tax consultants, this means less time to prepare financial statements, reconcile records, and finalise tax computations.
The change signals a broader push by the Kenya Revenue Authority to align reporting timelines more closely with payment deadlines and improve revenue administration.
Digital Assets and Cryptocurrency Come Under Greater Scrutiny
One of the most closely watched proposals involves digital assets.
The Bill introduces new reporting obligations for Virtual Asset Service Providers, including cryptocurrency exchanges and digital asset platforms. These entities would be required to provide information relating to users and transactions, with penalties for non-compliance.
The move mirrors international efforts aimed at improving transparency in digital asset markets and reducing tax evasion. It also signals that Kenya is moving towards a more structured framework for regulating and taxing crypto-related activities.
For cryptocurrency investors, the message is becoming increasingly clear. Digital assets are moving from a relatively informal space into one that will attract greater regulatory and tax oversight.
Mitumba Traders Enter the Tax Net
The Finance Bill also targets one of Kenya’s largest informal sectors.
A new presumptive tax regime has been proposed for the importation of second-hand clothing, footwear, and related goods commonly referred to as mitumba. Under the proposal, taxable profit would be deemed at 5 percent of the customs value of imported goods, with tax collected at the point of importation.
The government argues that the measure simplifies tax collection while helping bring a traditionally difficult-to-tax sector into the formal revenue system.
Supporters see it as a practical way to widen the tax base. Critics may argue that additional costs could eventually be passed down the supply chain to consumers.
New Pressure on Companies Holding Back Dividends
Private companies may also need to pay closer attention to how they manage retained earnings.
The Bill proposes that where the Commissioner deems income to have been distributed, at least 60 percent of that income must be treated as dividends for tax purposes.
In practical terms, businesses retaining profits for extended periods without a clear commercial justification could face greater scrutiny.
The proposal is designed to discourage arrangements where profits are accumulated indefinitely as a strategy for reducing tax liabilities.
A Boost for Real Estate Investment Trusts
Not all the proposals involve increased tax obligations.
The Finance Bill introduces measures that could make Real Estate Investment Trusts (REITs) more attractive to investors and property developers.
Transfers of property into qualifying REITs would become exempt from Capital Gains Tax, while related transfers would also receive Stamp Duty exemptions. These changes remove some of the tax costs that have historically discouraged the use of REIT structures in Kenya.
Industry participants have long argued that REITs offer an efficient way to unlock investment in the property sector while giving smaller investors access to professionally managed real estate portfolios.
The proposed changes could help accelerate growth within the sector.
Tax Amnesty Offers a Fresh Start
One of the more taxpayer-friendly provisions is the introduction of a tax amnesty programme.
The proposal allows taxpayers with outstanding liabilities relating to periods up to 31 December 2025 to regularise their affairs before 31 December 2026.
Tax amnesties often serve two purposes. They provide taxpayers with an opportunity to clear historical obligations while helping tax authorities recover revenue that might otherwise remain unpaid.
For individuals and businesses carrying unresolved tax issues, the amnesty window could offer an opportunity to reset their compliance status.
Stronger Enforcement Powers for KRA
Perhaps the most significant theme running through the Finance Bill is enforcement.
Several proposals strengthen KRA’s ability to monitor compliance, challenge tax avoidance arrangements, enforce electronic invoicing requirements, and pursue unpaid taxes. The Bill expands definitions relating to tax avoidance schemes and introduces tougher penalties for non-compliance with digital tax systems such as e-TIMS.
The government’s objective appears straightforward. Rather than relying entirely on new taxes, it aims to collect more revenue from existing tax obligations through better enforcement and broader compliance.
What’s Next?
It is important to remember that the Finance Bill remains a proposal until Parliament completes its review process and approves the final legislation.
Historically, significant amendments can occur between publication and enactment. Stakeholders, industry associations, businesses, professional bodies, and members of the public still have an opportunity to submit memoranda and participate in the legislative review process.
For now, the Finance Bill 2026 offers a clear indication of the government’s direction. The focus is shifting towards tighter compliance, expanded reporting requirements, greater visibility into economic activity, and a broader tax base.
Whether those measures achieve the intended balance between revenue collection and economic growth will become clearer as debate around the Bill continues in the months ahead.
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