FINANCE BILL 2026: MPs Reject Tough Tax Proposals, Shield Kenyans and Businesses in Major Amendments

The National Assembly's Departmental Committee on Finance and National Planning has proposed sweeping amendments to the Finance Bill, 2026, in a move aimed at protecting taxpayers and businesses while maintaining the government's revenue collection targets.

The Committee tabled its highly anticipated report before the House, recommending approval of the Bill with several key changes following an extensive public participation exercise that attracted views from more than 100,000 Kenyans and included public hearings across 13 counties.

The Finance Bill, 2026, seeks to streamline tax laws, enhance compliance, close loopholes, and align Kenya's tax framework with international standards. However, lawmakers say the proposed changes must strike a balance between raising revenue and safeguarding economic growth.

Speaking during the commencement of the Bill's Second Reading, Committee Chairperson and Molo MP Kuria Kimani said the review process was guided by the need to support economic recovery while ensuring fair taxation.

"Throughout this process, the Committee was guided by the need to balance revenue mobilization through administrative reforms with the imperative to support economic recovery, safeguard taxpayers' rights and promote sustainable growth," said Kimani.

Among the most significant recommendations is the rejection of a proposal that would have allowed the Kenya Revenue Authority (KRA) to issue agency notices against taxpayers even when disputes, objections, or court proceedings were ongoing. The Committee argued that such powers could disrupt business operations, strain cash flows, and undermine taxpayers' constitutional rights.

Lawmakers also opposed plans to include weekends and public holidays when calculating deadlines for filing tax objections and appeals, saying the move would unfairly shorten the time available to taxpayers and increase the likelihood of procedural defaults.

Businesses received another major reprieve after the Committee rejected a proposal requiring companies to distribute at least 60 percent of undistributed income as deemed dividends. Stakeholders had warned that the threshold was too high and would limit companies' ability to reinvest profits. The Committee instead recommended a lower threshold to be introduced through amendments.

The report further proposes more flexible tax return filing timelines, granting individuals four months and corporate entities six months to submit annual tax returns.

In a bid to protect manufacturers and consumers from increased costs, the Committee recommended retaining the zero-rated Value Added Tax (VAT) status for a range of essential products. These include locally assembled mobile phones, electric motorcycles, bicycles, buses, solar and lithium-ion batteries, sugarcane transportation services, and raw materials used in animal feed production.

Lawmakers warned that changing the items from zero-rated to exempt status would increase production costs, discourage investment in green technologies, and create uncertainty in the tax environment.

The Committee also rejected a proposal to shift the excise duty tax point for mobile phones to the stage of network activation, citing potential compliance challenges and confusion among consumers.

Additionally, MPs declined a proposal to extend mortgage interest tax relief to Central Bank of Kenya employees, arguing that the workers already benefit from preferential loan rates and should not receive additional tax advantages.

Despite rejecting several contentious provisions, the Committee supported measures aimed at improving tax compliance and broadening the tax base. Among them is the introduction of a 1.5 percent withholding tax on scrap metal sales to enhance transparency in the largely informal sector.

The lawmakers also backed a simplified framework requiring non-resident landlords to register and account for taxes on rental income earned in Kenya.

A proposed one-year tax amnesty programme beginning July 1, 2026, also received support. The programme would waive penalties and interest accumulated up to December 31, 2025, provided taxpayers settle the principal tax by June 2027.

The Committee noted that a similar amnesty introduced in 2023 generated KSh43.9 billion and attracted more than one million applicants.

However, Kimani warned that repeated amnesties could encourage tax non-compliance.

"The Committee noted that repeated use of tax amnesty programmes may create moral hazard by weakening the culture of voluntary compliance, as some taxpayers may delay payment of taxes in anticipation of future waivers," he cautioned.

To strengthen enforcement after the amnesty period, the Committee recommended amendments to the Tax Procedures Act that would give KRA broader debt recovery powers for fees and levies collected on behalf of other government agencies.

The report now forms the basis of parliamentary debate as lawmakers continue deliberations on the Finance Bill, 2026, ahead of the implementation of the government's taxation framework for the 2026/27 financial year.