NAIROBI, Kenya, Jun 18 — Parliament resumed debate on the Finance Bill, 2026 on Wednesday in a highly charged session expected to test support for sweeping tax and compliance reforms that could shape national revenue policy for the Financial Year 2026/2027.

The debate follows an earlier adjournment after sharp disagreements over proposed tax measures and questions surrounding public participation conducted by the Finance and National Planning Committee.

The Bill seeks to raise an additional Sh98.9 billion through a combination of tax administration reforms, expanded compliance measures and targeted changes to existing taxes.

One of the most contentious issues in debate has been rental income taxation.

The Finance Committee says the Bill does not introduce a new tax rate on rental income. Instead, it creates a simplified framework requiring non-resident landlords earning income from Kenyan property to register with the Kenya Revenue Authority and file monthly returns.

Where a property is managed by an agent, the agent will be responsible for withholding and remitting the tax. The aim is to improve compliance and close enforcement gaps.

2. KRA to rely more on third-party data

The Bill expands KRA’s powers to generate tax assessments using information from:

• eTIMS records
• PAYE filings
• Withholding tax returns
• Third-party data
• Electronic tax systems
• Audits and inspections

This means taxpayers who fail to file returns could still receive tax assessments generated from available data.

Following concerns raised by lawmakers and stakeholders, the committee recommended safeguards requiring KRA to disclose the information sources and calculations used when issuing assessments. The burden of proving the accuracy of disputed data would rest with the tax authority.

3. Tax amnesty returns

The Bill proposes a one-year tax amnesty programme covering liabilities accrued up to December 31, 2025.

Taxpayers who settle their principal tax liabilities by June 30, 2027 would qualify for a waiver of penalties, fines and interest.

The committee backed the proposal, citing the success of the 2023 amnesty programme, which attracted 1.06 million applications and recovered Sh43.9 billion in principal taxes.

4. Digital payments and card transactions under closer scrutiny

The Bill expands the definition of management and professional fees to include interchange fees and merchant service fees arising from card-based transactions.

Businesses would be required to deduct withholding tax on these fees at:

• 5 percent for residents
• 20 percent for non-residents

The committee says the change targets payment processors and card network fees rather than ordinary consumers using mobile money services.
Separately, digital financial services such as payment gateways, merchant acquiring, settlement and aggregation services would become subject to VAT.

5. Proposed mobile phone tax changes partly rolled back

The original Bill proposed increasing excise duty on mobile phones from 10 percent to 25 percent and shifting the tax point from importation to activation on a mobile network.

However, following stakeholder consultations, the Finance Committee recommended deleting the activation proposal, arguing that it would create significant compliance challenges and uncertainty for consumers.

The committee also recommended retaining the current zero-rated VAT status for locally assembled and manufactured mobile phones.

6. Electric vehicles and clean energy products spared VAT changes

The Bill initially proposed moving several products from zero-rated to VAT-exempt status.

Affected items included:

• Electric motorcycles
• Electric bicycles
• Solar batteries
• Lithium-ion batteries
• Electric buses
• Animal feed inputs
• Sugarcane transport services

Industry players warned the move would raise production costs because businesses would no longer claim input VAT credits.

The committee agreed and recommended retaining the zero-rated status for these products to support local manufacturing and green energy adoption.

7. Debate over second-hand clothes

The Bill proposes moving worn clothing and other second-hand articles, commonly known as mitumba, from the standard 16 percent VAT bracket to exempt status.

However, debate intensified after critics claimed some public submissions had supported imposing a separate 15 percent tax on mitumba imports.

Those claims became a flashpoint in Tuesday’s debate, with opponents questioning whether public submissions cited by the committee accurately reflected public opinion.

8. New taxes and tighter rules for betting

The Bill seeks to harmonise taxation in the betting and gaming sector by:

• Reintroducing a 20 percent withholding tax on winnings
• Defining winnings as net payouts excluding the amount staked
• Expanding the definition of withdrawals
• Extending betting excise duty to horse racing

The committee says the changes are intended to create a more predictable tax framework for operators and consumers.

9. Changes to gratuity and pension benefits

The Bill narrows tax exemptions for gratuity payments by introducing new conditions.

To qualify for tax-free gratuity, employees must:

• Serve continuously for at least three years
• Receive gratuity capped at 31 percent of basic salary
• Not already benefit from pension deductions

The committee argues the changes are intended to prevent employers from restructuring remuneration packages to avoid tax.
The Bill also clarifies that death benefits paid to beneficiaries of deceased pensioners will remain tax-exempt.

10. New filing deadlines for taxpayers

The Bill originally proposed reducing the deadline for filing individual income tax returns from six months to four months after the end of the financial year and requiring nil returns within one month.

The committee recommended a compromise:

• Individuals to file returns within four months
• Companies to file within six months

The recommendation aims to ease the compliance burden on businesses that require audited financial statements.

11. Committee deletes some controversial enforcement proposals

The Finance Committee rejected several proposals after public backlash.

Among the provisions recommended for deletion are:

• Allowing KRA to issue agency notices while tax disputes are pending in court or before the Tax Appeals Tribunal
• Including weekends and public holidays when calculating objection and appeal timelines

The committee warned the changes would undermine taxpayers’ rights and due process protections.

What happens next?

The National Assembly is currently considering the Bill at the Second Reading stage.

If MPs approve the Bill in principle, lawmakers will proceed to the Committee of the Whole House, where individual clauses and the Finance Committee’s proposed amendments will be debated and voted on.

The final version passed by Parliament could differ significantly from the original proposals tabled by the National Treasury.

With divisions already emerging across party lines, Wednesday’s debate is expected to focus on whether the Bill genuinely improves tax administration or imposes additional burdens on households and businesses already grappling with a high cost of living-Capitalfm.co.ke.