The Finance Bill 2024 may be long behind us, but its political ghosts still haunt Kenya. No debate on taxation, governance, or public trust can be complete without Kenyans referring to the 2024 protests.
Against this background, the proposed Finance Bill 2026—an Act of Parliament aimed at amending various taxes and duties—deserves greater scrutiny to determine whether or not it rebuilds confidence in Kenyans’ extremely fragile public trust amid increasing economic hardships.
To the Treasury’s credit, the Bill proposes a centralised and technologically integrated, zero-tolerance for non-compliance stance, shifting from its hitherto fragmented enforcement.
On the back of unmet fiscal deficit targets and the Medium-Term Revenue Strategy, this is a welcome stance, with the proposed aggressive enforcement of the Electronic Tax Invoice Management System likely to boost compliance.
The Bill also includes value-added tax VAT exemptions for some medical products, electric transport technologies, and agricultural inputs, while extending tax amnesty provisions to encourage compliance.
To attract foreign direct investment, the government proposes to remove the 16 percent VAT from the supply of goods and services for the direct and exclusive use in the implementation of infrastructure projects under public-private partnerships.
The Bill extends the time limit for claiming a refund of VAT on bad debts from two years to three years. This is welcome relief for businesses, which now earn an extra year to write off toxic receivables and recover the 16 percent output VAT previously paid to Kenya Revenue Authority (KRA) on unremitted sales.
However, the Bill is overshadowed by the wider perception that the government continues to prioritise extraction over economic relief. While it is necessary to widen the tax base, reduce the fiscal deficit, and stabilise public finances, the Bill fails to address the deeper question haunting Kenya’s economy: increased taxation with little to no accountability.
The Bill introduces and expands taxes touching nearly every aspect of daily life — smartphones, digital transfers, rental income and betting winnings.
Proposed excise duties on mobile phones and communication devices could raise device prices in a country where smartphones are increasingly essential for education, work, banking, and commerce.
Furthermore, dictating that liability and payment of excise duty on phones should be effected strictly at the time of activation of the phone on a network, forcibly converts telcos into tax collection agents who must link phone activations to KRA’s systems to verify duty payment before provisioning network access—a punitive and unnecessary burden.
Proposed changes, especially VAT not previously provided, are particularly problematic. At the top of the list is subjecting instalment sales in the form of Buy Now, Pay Later (BNPL) model to 16 percent VAT. This has the immediate effect of reducing the margins of informal BNPL service providers while potentially increasing costs for consumers, in addition to limiting access to the purchase of goods through this model.
While zero-rating of pharmaceutical inputs, animal feed inputs, mobile phones, electric motorcycles or bicycles, solar and lithium-ion batteries and electric buses do not result in the consumer paying VAT, the fact that manufacturers can no longer claim input tax refunds on operational costs means that this input VAT becomes a cost likely to be passed on to consumers.
Equally troubling is the proposed removal of VAT exemptions on money transfers and payment processing. Whereas Kenya has built a globally admired digital-finance ecosystem around affordability and accessibility, the Bill will essentially nullify these gains through proposals to exclude “money transfers, payment processing, settlement, merchants acquiring, gateway or aggregation services” supplied over software or platform by a PSP from the VAT exemption list.
This proposal will result in PSPs and banks charging 16 percent VAT on merchant fees and other transactions, which will make these services more expensive and eventually passed on to consumers. Increased transaction costs risk punishing the same low-income citizens who depend on mobile money for survival.
Among the most contentious proposals is allowing the KRA to treat 60 percent of undistributed company profits as taxable dividends — where is the room for reinvesting profits to boost wealth accumulation, increase shares, and/or drive compounded long-term investment and growth?
My message to the government on the Finance Bill 2026 is therefore simple: ordinary citizens and small businesses are immensely squeezed and cannot bear this squeeze anymore. They are exhausted and frustrated. Please give them a break!
The Bill also appears to backtrack on earlier promises made by the government to offer tax relief for lower-income earners, especially for workers earning below Sh50,000/.
Efforts by the National Treasury to explain why previously announced measures are absent from the current Bill are unimpressive, especially given the pomp with which the intended tax relief was announced. This omission is material because salaried workers already shoulder a disproportionate share of the formal tax burden – elevated PAYE rates, Housing Levy, SHIF and NSSF rates.
It is equally immoral that the government continues to impose on some salaried employees, tax rates that are higher than their employers. This failure to live up to the hyped pronouncements reinforces the perception of a government comfortable milking the proverbial cow, almost to a point of death, while remaining hesitant to confront waste, corruption, and inefficiency.
Indeed, a sustainable tax system depends on legitimacy and fairness. Citizens are more than willing to pay taxes when they believe the burden is fair, services improve, and public funds are protected. Kenya’s challenge today is not simply raising revenue; it is restoring trust.
The Finance Bill has been touted to widen the tax base, reduce the fiscal deficit, and stabilize public finances.
Nevertheless, Kenya’s current taxation regime fails to live up to the principles of a sound sustainable system. The system is inequitable (individuals are paying higher tax rates than corporates) and completely lacks certainty with every Finance Bill introducing new changes. The modalities for tax returns are neither convenient, simple or economical.
KRA itself operates in an extremely inflexible manner, working to frustrate rather than encourage tax compliance. The long-term economic, political, and social consequences of the Finance Bill will therefore be profound.
By continuing to subject the poor and middle class to higher taxes with limited services in return, the long-term effect is a wider income gap between the rich and the poor, increased poverty and potential resultant social unrest.
The results of an uncertain tax system are already evident. Corporates are shifting base to more certain jurisdictions. The result will be increased unemployment and shrinking corporate taxes thereby hampering economic growth.
Eliud Owalo is Former ICT Cabinet Secretary and 2027 Presidential Candidate in Kenya