The Tax Landscape in Kenya in 2026

Introduction: Why 2026 Is a Defining Year for Kenya's Tax System

To be honest, taxes aren’t the kind of topic people look forward to discussing in everyday conversations. But in Kenya right now, ignoring the tax landscape could cost you significantly. Whether you are a salaried employee in Nairobi, a startup founder in Kisumu, a freelancer running your business from a laptop in Mombasa, or a CFO managing a multinational's East African operations, the 2026 tax changes affect you directly.

The Kenya Revenue Authority (KRA) and the National Treasury have been rolling out a series of reforms aimed at widening the tax base, improving digital compliance, and aligning Kenya with global tax standards. Some of these changes are good news since there are expanded reliefs and incentives on the table. Others require immediate action on your part to avoid penalties. This comprehensive guide breaks it all down, section by section, in plain language you can actually use.

Kenya Tax Changes 2026: The Big Picture

Think of Kenya's 2026 tax environment as a renovation project on a house that is been standing for decades. The structure is still there — income tax, VAT, corporate tax — but the interior has been significantly redesigned. KRA's push toward full digital tax administration, following the expansion of the iTax and eTIMS systems, means that manual, paper-based compliance is increasingly a thing of the past.

At a macro level, the key themes of Kenya's 2026 tax changes include a stronger emphasis on digital services taxation, tightened anti-avoidance rules, revised VAT exemptions, and greater scrutiny of the gig economy and informal sector. The government's target is to push the tax-to-GDP ratio closer to 18%, up from its current levels, which means more people and businesses will be pulled into the formal tax net.

For businesses and individuals alike, the message is clear: get compliant, get organised, and get informed.

Income Tax in Kenya 2026: New Rates, Bands & Filing Deadlines Explained

Of all the tax conversations sweeping through boardrooms, WhatsApp groups, and office corridors in Kenya right now, none is generating more heat than the proposed overhaul of the PAYE (Pay As You Earn) system. And honestly, it's not hard to understand why. Income tax — specifically PAYE — is the single largest tax head for the Kenya Revenue Authority, with PAYE alone accounting for KES 560.945 billion or 32.30% of domestic revenue, making it the most significant pillar of Kenya's revenue architecture. It is also the tax that most directly touches the pocket of every salaried Kenyan every single month.

So when the government signals sweeping changes to how this tax works, people pay very close attention. In 2026, those signals are loud and clear — and for most low and middle-income earners, the news is largely encouraging.

The Headline: Zero Tax for Kenyans Earning KES 30,000 and Below

Let's start with the biggest announcement. Treasury Cabinet Secretary John Mbadi announced the government's plan to exempt over 1.5 million employed Kenyans earning below KES 30,000 from paying PAYE tax, with the Ministry set to present the Tax Laws Amendment Bill before Parliament for approval ahead of the Finance Bill 2026.

President William Ruto backed the proposal just as firmly. He stated that one and a half million working Kenyans will not pay any taxes, and another 500,000 will have their taxes reduced to 25 per cent, describing the reform as a progressive step in managing the cost of living.

This is not a minor tweak. This is a structural shift in how Kenya taxes its lowest-paid formal workers — and it matters enormously.

Where Things Stand Now: The Current PAYE Bands

To appreciate just how significant these proposed changes are, you need a clear picture of the existing system. Currently, PAYE rates under the Finance Act 2023 are: 10% on the first KES 24,000; 25% on the next KES 8,333; 30% on the next KES 467,667; 32.5% on the next KES 300,000; and 35% on income above KES 800,000.

In addition to these bands, the current Personal Relief stands at KES 2,400 per month (KES 28,800 per annum), which effectively means that someone earning exactly KES 24,000 currently pays very little PAYE after relief — but they still have to file and navigate the system.

The proposed changes raise that zero-tax floor significantly — from KES 24,000 to KES 30,000. For someone earning KES 25,000 or KES 28,000 a month, this is the difference between paying some tax and paying none at all.

The Proposed New PAYE Bands for 2026

Based on Treasury's announcements and stakeholder proposals currently before Parliament, here is how the new income tax structure is expected to look:

It is worth noting that high earners will also see some relief under the proposed reforms. The proposed changes include capping the top tax rate at 30%, down from the current 32.5% to 35% that currently applies to higher income brackets. This is a notable concession, even if it runs counter to the World Bank's recommendation to raise the highest income tax rate to 38% for very high earners.

The key proposals include expanding the band of income taxed at the lowest rate from KES 24,000 to KES 30,000 and introducing a 25% tax rate for monthly income between KES 30,000 and KES 50,000.

Additionally, personal relief is expected to increase from KES 2,400 to KES 3,000 per month with the proposed amendments — a modest but welcome adjustment that will reduce taxable liability across all income levels.

The Kenya Bankers Association (KBA) Proposal: A More Aggressive Cut

The banking sector has gone even further in its own proposals to Treasury. The Kenya Bankers Association suggested that income below KES 30,000 be exempt from PAYE, income between KES 30,001 and KES 50,000 be taxed at 15%, income from KES 50,001 to KES 100,000 at 20%, income between KES 100,001 and KES 400,000 at 25%, and any income above KES 400,000 at 30%.

The KBA's rationale is compelling: a 5% reduction across all PAYE tax brackets is a powerful economic stimulus that puts money directly into workers' hands, where it circulates quickly and drives broad-based economic growth. Their modelling suggests that salaried Kenyans could collectively save about KES 28 billion if the government implements a 5% reduction in PAYE taxes across all income brackets.

Whether Parliament ultimately adopts the Treasury proposal or the more generous KBA version remains to be seen — but the direction of travel is unambiguously toward lower taxes on salaried workers.

What Does This Mean for Your Actual Payslip?

Here's where we need to be honest about something important. While the PAYE relief is real and meaningful, it doesn't tell the whole story of your take-home pay in 2026. There are other statutory deductions that are simultaneously going up, which partially offset the tax gains.

These proposed tax changes come against the backdrop of an increase in National Social Security Fund (NSSF) contributions, where a 6% contribution will be applied across expanded earnings bands. The Tier I contribution will increase from KES 480 to KES 540, and the Tier II contribution will increase from KES 3,840 to KES 5,940 — effective from 1 February 2026.

What does this mean in real numbers? For a low-income individual earning KES 30,000, the net increase in take-home pay will be a meagre KES 1,361.25 due to the corresponding increase in NSSF, which does not provide any significant reprieve as intended by the government. Similarly, for someone earning KES 100,000, the proposed changes are expected to increase net pay by KES 1,207.10 — which while an increase, does not significantly ease the tax burden for salaried individuals.

This is why some analysts have called the 2026 PAYE relief the "take-home pay illusion" — the headline sounds generous, but once you factor in rising NSSF, SHA contributions, and the Affordable Housing Levy, the real gain in many pockets is smaller than expected. That said, zero tax for 1.5 million low-income earners is still a meaningful structural improvement and an important signal of policy direction.

The Broader Context: Why PAYE Reform Is Overdue

The push to reform PAYE isn't just political goodwill — it reflects a serious structural problem in Kenya's tax architecture. According to the 2025 KNBS Economic Survey, approximately 3.4 million individuals in Kenya are salaried, while about 17.4 million individuals are employed in the informal sector, representing 83.6% of the employed labour force. Yet the formal sector workers shoulder the vast majority of income tax collections.

CS Mbadi acknowledged this imbalance directly, noting that KRA is also integrating the tax system to capture those who have not been paying taxes, especially property owners, stating: "We have many people making KES 100,000 but just because they are not on the payroll, they run away, yet they are also using the roads and other infrastructure."

The broader reform agenda is therefore two-pronged: ease the burden on salaried workers at the bottom, while simultaneously widening the tax net to catch informal and high-wealth earners who have long avoided the system.

PAYE Changes and What They Mean for Employers

If you run a business with employees, the 2026 PAYE changes require an immediate update to your payroll system. Employers must ensure that PAYE computations are updated to reflect any new bands and rates as soon as the Tax Laws Amendment Bill is gazetted. Waiting until an audit to discover your payroll software was still running 2025 rates is not a position you want to be in.

KRA is also intensifying its scrutiny of payroll data consistency — ensuring that PAYE submissions are cross-matched against NSSF, SHA (formerly NHIF), and Affordable Housing Levy submissions. Discrepancies between these filings are increasingly triggering automated compliance flags and audit selections. The message to employers: get your payroll in order now, not after a demand notice arrives.

It is also worth noting that the Turnover Tax (ToT) regime — relevant for smaller businesses with annual turnover between KES 1 million and KES 50 million — is being redesigned for simplicity. KRA plans to allow small businesses to pay taxes directly through mobile money platforms such as M-Pesa, aligning payment schedules with cash flows and reducing administrative burdens — a practical improvement that should improve compliance in this segment.

Key PAYE and Income Tax Filing Deadlines for 2026 You Cannot Afford to Miss

Mark these dates in your calendar right now — missing them is an expensive mistake:

• Monthly PAYE remittance by employers: 9th of the following month (e.g., January PAYE is due by 9th February)

• Annual individual income tax return (Year of Income 2025): Due 30th June 2026

• Quarterly instalment tax for businesses and self-employed individuals: Due in March, June, September, and December

• Rental income monthly instalment tax: 20th of the following month

• Turnover Tax (TOT) monthly remittance: 20th of the following month

One important nuance on filing: even if you earn below KES 30,000 and your PAYE liability is zero under the new reforms, you may still be required to file a return if you have other income sources — rental, business, or freelance earnings. Zero tax on employment income does not mean zero obligation to file. When in doubt, file. The penalty for non-filing is KES 2,000 for individuals — avoidable with just a few minutes on iTax.

The income tax reforms unfolding in Kenya in 2026 represent the most significant shift in personal tax policy in years. Whether you're a low-income earner celebrating a zero-tax bill, a middle-income professional doing the maths on what the new bands mean for your payslip, or an employer reconfiguring your payroll software, these changes demand your attention. Stay close to the Finance Bill 2026 as it progresses through Parliament — because the detail in the final legislation will determine exactly what lands on your payslip from mid-2026 onwards.

PAYE Changes and What They Mean for Employees

If you're employed, your employer handles PAYE (Pay As You Earn) deductions on your behalf. But 2026 introduces tighter employer obligations around accurate payroll reporting via the KRA's integrated systems. Employers must ensure that PAYE submissions mirror data filed in the National Social Security Fund (NSSF) and National Health Insurance Fund (NHIF/SHA) systems — discrepancies will trigger automated audits.

As an employee, it's worth requesting a payslip that clearly shows your taxable pay, deductions, and net tax. Don't assume your employer is always getting it right.

Key Filing Deadlines You Cannot Afford to Miss

• Individual income tax returns: Due by 30th June 2026 for the year of income 2025

• Monthly PAYE remittance by employers: 9th of the following month

• Rental income tax (monthly instalment): 20th of the following month

• Instalment tax for businesses (quarterly): March, June, September, December

Mark these in your calendar now. Late filing, even by a single day, attracts penalties.

Corporate Tax Updates in Kenya 2026: What Companies Need to Prepare For

If you are running a company in Kenya — whether a lean startup, a mid-sized manufacturer, or the local subsidiary of a multinational — 2026 is not a year to sit back and assume that last year's tax strategy will hold. The corporate tax environment is shifting on multiple fronts simultaneously: digitised expense validation, tightened incentive rules, new international tax obligations, and a KRA enforcement posture that is more data-driven and less forgiving than at any point in Kenya's revenue history. Your finance team needs to be ahead of this, not catching up to it.

Let's break it all down.

The Standard Corporate Tax Rate: What Stays the Same

The headline rate remains unchanged. Resident companies continue to pay corporate income tax at 30%, while non-resident companies operating through a permanent establishment in Kenya are taxed at 37.5%. There are no county or provincial taxes on income — all corporate taxes are collected exclusively by the national government through KRA. So at the top-line level, the rate card is familiar.

But the rate is only part of the story. What's changing in 2026 is everything around it — how profits are calculated, which deductions survive scrutiny, which incentives remain available, and what level of documentation you need to defend your return if KRA comes knocking.

Changes to Corporate Tax Rates and Incentives

SEZ Companies: Capped Incentive Period, Tightened Qualification

Companies operating within Kenya's Special Economic Zones continue to benefit from a preferential corporate tax rate of 10% for the first ten years of operation. However, the 10% corporate tax incentive for SEZ was capped at ten years, after which the normal rate of 30% will apply — a change that signals the government's intention to rationalise long-running preferential rates. Companies that have been in SEZs for several years should be actively modelling when their preferential period expires and budgeting for the eventual step-up to the standard 30% rate.

Qualification criteria for SEZ benefits are also under greater scrutiny. KRA and the National Treasury are paying closer attention to whether companies in SEZs are genuinely engaged in value-adding activities — manufacturing, export-oriented services, logistics — or merely using the SEZ status as a tax shelter without substantive operations.

Startups: A New Preferential Rate via NIFCA

One of the genuinely exciting developments from the Finance Act 2025 that carries significant implications into 2026 is the introduction of a reduced corporate income tax rate for startups. Startups certified by the Nairobi International Financial Centre Authority (NIFCA) now qualify for a reduced corporate income tax rate of 15% for the first three years and 20% for the following four years. For early-stage companies burning through capital and navigating uncertain revenue, this is a meaningful relief. If you are a tech startup, fintech, or financial services company and haven't explored NIFCA certification, this is worth your immediate attention.

Turnover Tax: Simplified, But Digitally Enforced

KRA plans to exempt micro and small businesses from the requirement to pay quarterly instalments and to generate payment registration numbers under the Turnover Tax regime — a welcome administrative simplification that reduces compliance friction for the smallest businesses. However, the trade-off is stricter digital enforcement: even businesses under the Turnover Tax umbrella are now expected to issue eTIMS-compliant invoices and maintain auditable digital records. The era of handwritten receipts and informal paper trails, even for the mama mboga or the small hardware shop, is firmly over. Note also that the Finance Act 2023 decreased the upper threshold for Turnover Tax from KES 50 million to KES 25 million, meaning businesses between KES 25 million and KES 50 million have already moved into the standard corporate tax regime.

The eTIMS Revolution: The Biggest Practical Change for Businesses in 2026

If there is one development that will reshape day-to-day corporate tax compliance more than any rate change, it is this: from January 1, 2026, KRA began validating income and expenses declared in both individual and non-individual income tax returns against electronic data sources, with this validation taking place automatically upon submission of the 2025 year of income return via the iTax platform.

What does this mean in plain English? Any business expense you wish to deduct must be supported by an eTIMS/TIMS electronic tax invoice. If the invoice is missing, incomplete, or not issued electronically, KRA will tax you on the full amount. The system doesn't care whether the expense was genuine. If it can't be verified electronically, it doesn't exist in KRA's eyes.

The practical consequences of this are significant and, for some businesses, potentially severe. Think of a small agribusiness that buys fertiliser and seeds from a rural supplier who has no PIN and cannot issue an eTIMS invoice. If the business paid KES 400,000 for these inputs, KRA will automatically treat that KES 400,000 as profit, even though it was spent on genuine business expenses.

KRA will cross-check all declared income and expenses against three primary sources: TIMS/eTIMS invoices for goods and services, withholding tax records showing gross amounts already deducted at source, and import records from customs systems. If your declared figures are lower than what these systems reflect, KRA uses the higher figure — automatically, without discussion.

The message for corporate finance teams is stark: audit your supplier base now. Any supplier who cannot issue a compliant eTIMS invoice is a liability on your balance sheet. You either help them formalise, switch to a compliant alternative, or absorb the tax cost of their informality. None of those options are painless, but one of them is inevitable.

Need expert guidance on corporate tax compliance in Kenya? Reach out to our tax advisory team today.

Tax Loss Carry-Forward: A Material Change

Here's one that caught many companies off-guard. The Finance Act 2025 limited the carrying forward of tax losses to five years, with a possible five-year extension upon approval by the Cabinet Secretary. Previously, there was no such cap, allowing companies — particularly capital-intensive or high-burn startups — to carry losses forward indefinitely until offset against future profits. The new five-year limit means companies with large accumulated losses need to urgently model whether those losses will be absorbed within the window, or whether they'll expire unused, permanently forfeiting that tax benefit.

This change hits sectors like mining, large-scale agribusiness, and manufacturing hardest, where the ramp-up to profitability naturally takes many years. If your company is sitting on significant unrelieved losses, get your tax advisor to project utilisation timelines immediately.

Capital Allowances: Good News on Diminution

Not everything in 2026 is tighter. The Finance Act 2025 reinstates the diminution allowance for goods like utensils and implements — excluding machinery and plants — and establishes a 100% diminution allowance that must be deducted in the year of income in which the expense is incurred. This is particularly welcome for businesses in hospitality, catering, and healthcare, where low-value assets like cutlery, linen, and medical equipment are replaced frequently. Getting a 100% write-off in the year of purchase rather than spreading it over several years is a genuine cash-flow improvement.

Transfer Pricing and Multinational Compliance

For companies with cross-border related-party transactions, 2026 brings some important administrative tools — and tightened rules. Advance Pricing Agreements (APAs) have been introduced, allowing taxpayers to enter into APAs with the tax authority for cross-border transactions, providing certainty and reducing audit risks. This is a significant and welcome development. An APA lets you agree with KRA in advance on the pricing methodology for intercompany transactions — eliminating the uncertainty and cost of disputes after the fact.

However, contemporaneous transfer pricing documentation remains a non-negotiable requirement. You cannot prepare the transfer pricing study after an audit commences. It must exist at the time of filing, and it must robustly justify the arm's-length nature of all related-party transactions.

The Global Minimum Tax (BEPS Pillar Two): Are You In Scope?

Kenya has legislated for the Global Minimum Tax, and 2026 marks the year companies need to seriously engage with whether they are in scope. A Kenyan business must be a member of a multinational corporation with a combined yearly turnover of EUR 750 million (approximately KES 113 billion) to be required to pay the minimum top-up tax.

If you meet that threshold, the mechanics matter: the Finance Act 2025 provides for the resultant top-up tax to be paid by the end of the fourth month after the end of the tested year of income — with the first payment likely due by 30 April 2026 for businesses with 31 December year-ends.

Large corporate groups operating in Kenya should be calculating their effective tax rates now, jurisdiction by jurisdiction. If your effective rate in Kenya falls below 15%, a top-up tax liability exists. Model it, budget for it, and ensure your group's reporting infrastructure can generate the data needed for Pillar Two compliance.

Corporate Tax Filing Deadlines for 2026

Corporate tax must be filed annually within six months of your financial year-end, with VAT filed monthly by the 20th if turnover exceeds KES 5 million and PAYE filed and paid by the 9th of every month. Instalment taxes remain payable in four quarterly tranches — get these scheduled in your finance calendar at the start of the year and treat them as fixed obligations, not afterthoughts.

The overriding theme for corporate tax compliance in Kenya in 2026 is this: documentation, digitisation, and discipline. The companies that will navigate this year well are those that have clean digital records, compliant supplier chains, up-to-date transfer pricing files, and a proactive relationship with a qualified tax advisor. The ones that will struggle are those still running informal, undocumented expense systems and hoping KRA won't look closely. In 2026, KRA is looking very closely indeed — and the system is doing it automatically.

Value Added Tax (VAT) in Kenya 2026: New Rules, Exemptions & Impact on Prices

Here is a truth that most Kenyans never fully appreciate: you are paying tax even when you have never filed a return in your life. Every time you buy a bottle of cooking oil at the supermarket, subscribe to a streaming service, or pay a contractor to fix your roof, VAT at 16% is baked into that price. VAT is, by design, invisible — but its reach is enormous. It touches every transaction in the formal economy and, through higher prices, it touches the informal one too.

In 2026, several significant changes to Kenya's VAT framework — flowing from the Finance Act 2025 and anticipated Finance Act 2026 reforms — mean that both businesses and consumers need to update their understanding of what gets taxed, what doesn't, and what those changes mean for their wallets.

The VAT Rate Itself: Stable for Now, But Watch This Space

The standard VAT rate remains at 16% for most goods and services. The reduced rate of 8% continues to apply to petroleum products — fuel, kerosene, and related products. And zero-rating at 0% applies to exports and a range of qualifying goods and services.

However, reforms expected under the Finance Act 2026 include reconsidering the VAT rate itself, rationalising exempt and zero-rated supplies, and potentially introducing VAT on selected currently exempt services such as education and insurance. These are proposals at this stage, but they signal the direction of policy thinking clearly. If you operate in education, insurance, or financial services, these are conversations you should be having with your tax advisor right now.

Zero-Rated vs. Exempt: Why the Difference Actually Matters

This distinction confuses many business owners, so let's make it simple with an analogy. Think of zero-rated as being on a road where the toll is zero — you still pass through the system, you can still claim back what you spent getting to the toll. Zero-rated goods are taxed at 0%, meaning suppliers do not charge VAT to customers but can still claim input VAT on the materials used in producing those goods — keeping the supply chain cost-efficient.

Exempt supplies, on the other hand, sit entirely outside the VAT system. Exempt goods are not subject to VAT either, but suppliers cannot claim back input VAT. This makes the supply chain more expensive, as manufacturers and service providers bear the full burden of VAT on inputs without reimbursement — often resulting in higher consumer prices or reduced profit margins.

So from a consumer's perspective, both zero-rated and exempt goods might look the same at the checkout counter. But from a business perspective, the difference can mean millions of shillings in unrecoverable input VAT costs — costs that typically get passed along to you, the buyer.

What Has Changed: Key Reclassifications and New Rules

The Finance Act 2025, which took effect from 1 July 2025 and carries significant implications into 2026, introduced several important VAT changes:

New exemptions introduced (good news for consumers): The Act retained most existing items and added targeted exemptions, including clinical trial kits, mosquito repellents, and services to their manufacturers, as well as locally consumed tea — which was previously taxable at the standard 16% rate. Additionally, zero-rating was introduced for packaging materials for tea and coffee, subject to recommendation by the Cabinet Secretary responsible for agriculture. For Kenya's tea sector — a cornerstone of the economy — this is a meaningful relief that should help keep tea competitive in export markets.

Items that have become taxable (less good news): Several categories of goods that previously enjoyed VAT relief have been brought into the taxable net. These include woven fabrics used in textile manufacturing, discs and smartcards classified under Tariff 85.23, and goods related to affordable housing construction, specialised hospital inputs, and solar and wind energy equipment — all of which now attract VAT.

That last point deserves emphasis. Solar panels and wind energy equipment — precisely the technologies Kenya needs to expand energy access and meet its green energy targets — now attract standard VAT. This has drawn criticism from the renewable energy sector, who argue it directly contradicts government messaging on clean energy adoption.

The reclassification of electric buses and solar batteries as exempt rather than zero-rated is also concerning — by shifting these items to exempt status, the government effectively removes the ability of businesses to claim input VAT, increasing the cost of manufacturing or supplying these products and potentially hurting Kenya's climate goals.

The New Misuse Clawback Rule: A Warning for All Businesses

Here is a new rule that every VAT-registered business must internalise in 2026. The Finance Act introduced a provision to impose VAT where goods or services initially acquired as exempt or zero-rated are later used or disposed of inconsistently with their intended purpose (Kenya Bankers Association). In plain language: if you bought something tax-free on the basis that it would be used for a qualifying purpose, and then you use it for something else, KRA will charge you VAT retrospectively — and potentially penalise you.

This change is specifically aimed at curbing abuse in sectors like education, healthcare, and donor-funded projects, where VAT relief has sometimes been granted and then misused. It emphasises that VAT exemptions are not absolute but depend on continued compliance with the intended purpose. Practically, this means businesses must implement strong internal controls to track how exempt goods are used — and document that usage meticulously.

Digital Services VAT: The Platforms Are Now Firmly in Scope

If you subscribe to Netflix, use a cloud storage platform, or run ads on a foreign digital platform, you are already touching this issue. Non-resident suppliers providing electronically supplied services to Kenyans are required to register for VAT in Kenya if they make supplies to recipients in Kenya — covering both business-to-consumer (B2C) transactions from April 2021 and business-to-business (B2B) transactions from July 2022.

The Finance Act 2025 further expanded the scope of taxable electronic services by non-resident suppliers to include internet, radio, and television broadcasting — meaning non-resident persons providing these services must now register and account for VAT in Kenya. Streaming platforms, podcast networks, online radio, and broadcasting apps with Kenyan audiences are all within this expanded scope. If the platforms comply — and they increasingly are — expect those subscription prices to include or reflect Kenyan VAT.

A Big Policy Signal: The VAT Registration Threshold Review

Reforms expected in 2026 include reviewing the VAT registration threshold upwards, especially since the last adjustment was in 2007 when it was increased from KES 3 million to the current KES 5 million. That 2007 threshold is wildly out of date. Inflation alone means a business turning over KES 5 million today is significantly smaller in real terms than one turning over KES 5 million in 2007. Raising the threshold would remove compliance burdens from genuinely small businesses while allowing KRA to focus enforcement efforts on larger, higher-risk taxpayers. Watch the Finance Bill 2026 closely on this point.

The Input VAT Refund Rule Change: Act Fast or Lose Your Money

One change that directly affects cash flow for VAT-registered businesses: the claim period for input VAT refunds has been reduced from 24 months to 12 months. This means that if you have excess input VAT — because your zero-rated exports or purchases exceed your output VAT — you now have a maximum of 12 months from the relevant tax period to file your refund claim. Miss that window and the refund is forfeited. For exporters and businesses with large capital expenditure, this tighter deadline demands more disciplined monthly VAT accounting. Build the refund monitoring into your monthly financial close process — it is too important to leave to year-end.

How VAT Changes Hit Your Everyday Life

Let's bring this back to ground level. If you're not a business owner or a tax professional, what does any of this actually mean for your daily spending?

For most Kenyans, the VAT relief on basic food staples — unga, rice, sugar, bread — remains intact. Your grocery bill at the local market shouldn't jump as a direct consequence of these VAT reforms. The relief on healthcare essentials and basic medical supplies also holds, which is critical for hospitals and patients alike.

Where you will feel the pinch is in digital services, technology products, and anything touching construction or solar energy. Your Netflix or Showmax subscription, your cloud software tools, your purchases of woven fabrics or specialised equipment — these either already carry VAT or are moving firmly into that category in 2026. The era of digital services flying under VAT's radar is well and truly over.

For businesses, the non-negotiable takeaway is this: registered persons making any supply — including exempt ones — are now required to issue a valid tax invoice. Universal invoicing is the new standard. Update your billing systems, train your accounts team, and make sure every transaction, taxable or not, generates a compliant eTIMS invoice. In 2026, your documentation is your defence.

How to File Taxes in Kenya in 2026: Step-by-Step Guide for First-Time Filers

Filing taxes for the first time can feel like being handed a map written in a foreign language — intimidating at a glance, but surprisingly navigable once someone walks you through it. The good news is that 2026 has brought genuine improvements to Kenya's iTax platform that make the process faster and far less painful than it used to be. No more wrestling with complex Excel spreadsheets. No more hours of manual data entry. If you are a first-time filer or someone who has been putting this off, this is your year to get it done. Here is exactly how.

Step One: Get Your KRA PIN

Before anything else, you need a KRA Personal Identification Number (PIN). If you don't have one, this is your very first task. Head to itax.kra.go.ke and click on "New PIN Registration." You'll need your national ID number, a working email address, and a mobile phone number. The process takes roughly 15 to 30 minutes and your PIN is issued immediately online. Keep it safe — you willl use it every year for the rest of your working life.

If you already have a PIN but have forgotten your iTax password, click "Forgot PIN/Password" on the login page and follow the reset prompts sent to your registered email.

Step Two: Know What You're Filing and When

The filing window for the year of income 2025 runs from 1 January 2026 to 30 June 2026. Don't wait until the last week of June — the system gets congested and technical issues tend to spike right at the deadline. Aim to file by May at the latest. Every individual with a KRA PIN is required to file a return every year regardless of whether they earned an income or not. If you earned nothing, you file what is called a Nil Return. It takes about two minutes and keeps you compliant.

Step Three: Gather Your Documents First

Before you log in, assemble everything you need. Nothing derails a first-time filer faster than starting the process and realising key documents are missing. Here is what you need depending on your situation:

For employed individuals: Your P9 form from your employer. This is the most important document — it summarises your total gross pay for the year, PAYE deducted monthly, and any benefits or allowances. If you had more than one employer in 2025, declare income from all employers in a single return. Request a P9 from each employer.

For self-employed individuals and freelancers: Bank statements or M-Pesa transaction records showing business income received, plus receipts or invoices for all allowable business expenses. Prepare records of business income and allowable expenses for the year, and ensure expenses claimed are supported by valid documentation, including compliant eTIMS invoicing records.

For those with rental income: Records of rent received month by month and receipts for allowable property expenses — maintenance, management fees, and mortgage interest where applicable.

For everyone: Any insurance premium payment certificates if you are claiming insurance relief, and your pension contribution statements if claiming pension relief.

Step Four: The New Simplified Return Feature — A Game Changer for Employees

KRA introduced a Simplified Return feature on iTax specifically designed for individuals whose only income comes from employment. The system automatically populates salary and tax details based on information submitted by employers. Taxpayers only need to confirm whether they have additional reliefs or deductible expenses.

To use the Simplified Return, visit kra.go.ke and log in to iTax using your National ID number. Navigate to the Returns tab and select Simplified Returns. Click Income Tax Return (ITR) for employment income only, select the period of filing, and click Next. A document with pre-filled details will appear.

Review the pre-filled figures carefully against your P9 form. If the numbers match, add any additional reliefs — insurance, pension contributions, mortgage interest — and submit. The whole process for a straightforward employment return should take under ten minutes.

Important caveat: If you have a withholding tax certificate or any other income apart from employment, you cannot use the Simplified Return and must file the full IT1 return using the Excel form. KRA Similarly, if your employer does not remit PAYE through iTax — for example, certain government entities using IFMIS — you will need the full Excel-based return.

Step Five: Claiming Your Reliefs — Don't Leave Money on the Table

Many first-time filers focus entirely on declaring income and forget they are equally entitled to claim reliefs that reduce their tax liability. The reliefs available in 2026 include:

Personal Relief: Available to all individual taxpayers at KES 2,400 per month — this is automatically applied in the system.

Insurance Relief: For those who pay life insurance premiums, 15% of the amount paid up to KES 60,000 per year is deductible. You need your insurance premium receipt or annual statement to claim this.

Pension Contribution Relief: Contributions to a registered retirement benefits scheme — up to KES 20,000 per month — are deductible. Your employer's pension statements will confirm the figures.

Mortgage Interest Relief: If you have a mortgage on your home, interest paid up to KES 300,000 per year is deductible. Your bank will provide an annual mortgage interest statement.

Step Six: Declare All Income — KRA Is Watching

This is the part many people overlook. If you had additional income beyond employment — freelance work, consultancy, online services, farming, or other income-generating activities — you must declare it in the same return. KRA's systems in 2026 are cross-referencing iTax data against bank records, M-Pesa statements, and withholding tax certificates. Undeclared income is becoming increasingly difficult to hide. Declare everything, claim your allowable deductions, and pay on the net figure.

Where withholding tax has already been deducted from your income — for instance, on professional fees or rental income — declare the gross income and apply the withholding tax as a credit against the tax payable. You should have a withholding tax certificate from the person or company that made the deduction — confirm this is reflected in iTax before filing.

Step Seven: Submit and Save Your Acknowledgement

Once you've reviewed everything carefully, hit Submit. You will receive an instant notification that your return has been submitted successfully, along with an acknowledgement number. Download and save this acknowledgement receipt — it is your proof of compliance and may be required when applying for a Tax Compliance Certificate, a bank loan, a government tender, or a work permit.

If you make an error after filing, you can submit an amended return through iTax. Amendments should be done promptly, especially where additional tax becomes payable, to avoid penalties and interest.

What Happens If You Miss the Deadline?

Individual taxpayers are subject to a penalty of KES 2,000 or 5% of the tax due — whichever is higher — for late filing of returns. For most employees with relatively modest tax liabilities, the 5% figure often lands above KES 2,000, making late filing a genuinely costly mistake. Add the monthly 1% interest on any outstanding tax balance, and the penalty compounds fast. The filing window is six months long — there is simply no good reason to miss it.

File early, file accurately, and keep your records. Tax compliance in 2026 is not just a legal obligation — it is the foundation of your financial credibility in an increasingly digitised economy.

Tax Incentives & Reliefs in Kenya 2026: Opportunities for Startups & Investors

Here's the good news that many Kenyans overlook: there are genuinely valuable tax incentives available in 2026 that could meaningfully reduce your tax burden — if you know about them and plan proactively.

Special Economic Zones and Investment Deductions

Companies investing in SEZs benefit from the reduced corporate tax rates mentioned earlier, plus exemptions from customs duties on raw materials and capital goods. If you're in manufacturing, logistics, or export-oriented services, exploring SEZ status could deliver significant savings.

Investment deductions — essentially accelerated depreciation allowances — allow businesses that invest in machinery, plant, and industrial buildings to write off large portions of that capital expenditure in the early years, reducing taxable profits.

Incentives Specifically for SMEs and Agribusiness

The government has maintained a 150% investment deduction for qualifying investments in identified priority areas — notably agribusiness, affordable housing construction, and local manufacture of priority goods. This means for every KES 1 million you invest in qualifying assets, you get KES 1.5 million as a deductible expense. That's a powerful incentive that many SMEs are simply not claiming because they don't know it exists.

Insurance relief at 15% of premiums paid (capped at KES 60,000 per annum) remains available to individuals with qualifying life insurance policies — another often-missed relief.

Common Kenya Tax Mistakes to Avoid in 2026 (And How to Fix Them)

Let's be direct about something: most Kenyans who end up with KRA penalties didn't set out to break the law. They simply didn't know the rules, misunderstood what was required, or assumed that someone else — their employer, their accountant, their business partner — was handling it. The result is the same regardless of intent: penalties, interest, audit notices, and the unique stress of having KRA looking closely at your affairs.

The 2026 tax environment is less forgiving than any previous year. KRA's systems are now doing automatic validation of declared income and expenses against electronic data sources upon submission of returns — meaning errors that might have slipped through in previous years are now flagged instantly, triggering upward tax adjustments, penalties, interest charges, and possible delays or denial of a Tax Compliance Certificate.

Here are the most common and costly mistakes Kenyan taxpayers are making right now — and exactly how to fix them.

Mistake 1: Failing to File a Nil Return

This is the single most widespread and most avoidable mistake in Kenya's tax system. If you have a KRA PIN — which every Kenyan adult who has ever applied for a job, opened a bank account, or done any formal business has — then you are legally obligated to file an annual income tax return, even if you earned absolutely nothing that year.

Many Kenyans assume that if there is no income, there is no return to file. This assumption is wrong and expensive. The penalty for late filing of a Nil Return is KES 2,000 for individuals, and this penalty stands even though the actual tax due is zero. Multiply that across several years of non-filing — which is common — and you could easily be sitting on KES 10,000 or more in accumulated penalties before a single shilling of actual tax is even discussed.

The fix: Log into iTax, navigate to Returns, select Income Tax — Resident Individual, choose the applicable year, and file a Nil Return. It takes under five minutes. Do it for every year you missed, working backwards, and then set a recurring reminder every June to file before the 30th deadline. Do not wait for KRA to contact you first.

Mistake 2: Treating PAYE as Your Full Tax Obligation

This mistake is extremely common among employed Kenyans, and it carries serious financial consequences. PAYE only accounts for employment income. It never did and never will cover rental income, freelance earnings, consultancy fees, dividends, or any other income stream outside your formal salary.

The dangerous assumption is: "My employer deducts PAYE every month, so I am sorted." You are sorted on your salary income only. Every other income stream requires separate declaration in your annual return.

What makes this particularly risky in 2026 is how sophisticated KRA's data-matching has become. KRA's visibility into financial life is broader than most people appreciate — banks report account activity through the Common Reporting Standard, platforms like Airbnb and Upwork share income data with tax authorities, and tenants claiming rent as a business expense create a paper trail that leads straight back to the landlord. Undeclared rental income, in particular, is increasingly easy for KRA to detect through cross-referencing.

The fix: Declare all income sources on your annual individual income tax return — employment income, rental income, freelance fees, business income, dividends, and any other earnings. Declare gross income, apply allowable deductions and withholding tax credits, and pay the net balance. The cost of voluntary compliance is almost always lower than the cost of an audit.

Mistake 3: Assuming Withholding Tax Settles Your Full Tax Bill

KRA has explicitly clarified that a large number of Kenyans who receive payments after withholding tax (WHT) has been deducted mistakenly believe the deduction settles their entire tax bill. In many cases, withholding tax only covers part of a taxpayer's total income tax liability.

Here is how it works in practice. When a company pays you consultancy fees, they deduct WHT at 5% and remit it to KRA. That 5% is an advance — not a final tax. For professional fees, consultancy fees, management fees, contractual services, commissions, marketing and advertising services, and digital content income, withholding tax functions as an advance payment rather than a final settlement. This means taxpayers may still owe additional income tax when filing their annual returns.

If your applicable income tax rate is 25% or 30%, and WHT was only deducted at 5%, the remaining 20-25% is still yours to pay when you file your return. Ignoring this leaves you with an underpayment — and KRA's systems will catch it automatically in 2026.

The fix: When filing your annual return, declare the gross amount of income received before WHT deductions, claim the WHT certificate amounts as credits against your tax liability, and pay any remaining balance. Always request a WHT certificate from whoever deducted the tax — this is your entitlement under the Tax Procedures Act and you need it to complete your return correctly.

Mistake 4: Claiming Expenses Without eTIMS-Compliant Invoices

This is the most financially devastating mistake for businesses in 2026, and it is new. From 1 January 2026, KRA began validating every expense declared in income tax returns against eTIMS electronic data sources. Any business expense not backed by a valid eTIMS invoice will be treated as if it never existed — and KRA will tax you on the full undocumented amount.

Think about what this means for a business that regularly buys from informal suppliers — small traders, rural farmers, unregistered service providers. Every payment to a supplier who cannot issue an eTIMS invoice is now a taxable expense rather than a deductible one. You spent the money, it was a genuine cost, but KRA cannot see it electronically — so in their system, it's profit.

KRA treats any mismatch between declared expenses and eTIMS purchase records as a discrepancy — resulting in upward tax adjustments, penalties, interest charges, and possible delays or outright denial of a Tax Compliance Certificate.

The fix: Audit your supplier base immediately. Identify all suppliers who are not issuing eTIMS-compliant invoices and either help them register on the system, switch to compliant alternatives, or build the tax cost into your pricing. For any unavoidable informal purchases, document the business purpose meticulously and consult a tax advisor on the best approach.

Planning to optimize your tax strategy for 2026? Book a consultation with our experts and protect your business growth.

Mistake 5: Ignoring Unexplained Bank Deposits

This is an emerging enforcement area that has caught many Kenyans completely off-guard. A landmark August 2025 ruling by the Tax Appeals Tribunal in the case of Kirin Pipes Limited v. Commissioner confirmed that unidentified bank deposits are presumed to be taxable income unless the account holder can prove otherwise (Anchinga and Associates). KRA has since moved aggressively on this front.

KRA's Banking Analysis methodology involves obtaining bank and mobile money statements, empowered by Section 59 of the Tax Procedures Act, and scrutinising every credit. Any deposit that cannot be reconciled with the taxpayer's declared income is flagged as a potential tax liability.

For individuals receiving money transfers from family abroad, proceeds from sale of personal assets, loan repayments, or money pooled in chamas, the risk is real. If you cannot explain a deposit with documentation, KRA can — and increasingly does — treat it as taxable income.

The fix: Maintain clear records explaining the source of every significant deposit in your bank account. Loan agreements, gift documentation, asset sale receipts, and chama minutes are all useful. The burden of proof in 2026 sits firmly with the taxpayer, not KRA.

Mistake 6: Missing Withholding Tax Obligations as a Payer

Many small business owners don't realise that their obligations don't stop at paying their own taxes. Delaying or neglecting withholding tax obligations — including on rent paid to landlords, fees paid to consultants, dividends paid to shareholders, and commissions paid to agents — can result in KRA audits, heavy fines, and reputational damage.

If you pay rent above KES 24,000 per month to a landlord, you are a withholding tax agent. You must deduct 10% WHT and remit it to KRA within five days of the end of the month. If you pay a consultant, the rate is typically 5%. Failure to deduct and remit makes you personally liable for the tax that should have been withheld — even if the recipient has already paid their own taxes.

The fix: Map every payment your business makes and identify which ones attract WHT obligations. Build this into your accounts payable process, register as a withholding tax agent on iTax if you haven't already, and ensure remittance happens automatically every month without exception.

Mistake 7: Charging VAT Before Registering

A common and surprisingly costly mistake is adding 16% VAT to invoices without first registering with KRA or filing VAT returns. KRA treats this as unauthorised tax collection and imposes penalties accordingly. You have collected money from your customers under the banner of tax, but you have no legal authority to do so and nowhere to remit it — a situation KRA views very dimly.

Conversely, businesses crossing the KES 5 million annual turnover threshold and failing to register for VAT at all are also non-compliant — and face backdated VAT assessments on all taxable supplies made since the threshold was crossed.

The fix: If your turnover is approaching KES 5 million, begin the VAT registration process on iTax before you cross the threshold, not after. And never charge VAT on an invoice unless you are a registered VAT vendor with an active KRA certificate. Your registration certificate number should appear on every VAT invoice you issue.

Mistake 8: Relying on One Person for All Tax Matters

Over-reliance on a single staff member for tax matters is a significant and underappreciated compliance risk. If that person leaves, makes an error, or becomes unavailable, your entire compliance framework is compromised — and ignorance is not a defence KRA will accept.

This is particularly common in SMEs where the founder doubles as the finance manager, the tax agent, and everything else. One illness, one resignation, or one honest mistake can create a cascade of missed deadlines and compounding penalties.

The fix: Cross-train at least two team members on your core tax processes. Maintain an up-to-date relationship with an outsourced tax advisor registered with ICPAK. Build a compliance calendar that runs automatically — not one that lives in a single person's head. The cost of good tax advice is a fraction of the cost of a KRA audit or penalty dispute.

Tax mistakes in Kenya in 2026 are not just administrative inconveniences — they are financial risks with real consequences. The good news is that every mistake on this list is entirely preventable with the right knowledge, the right systems, and the right professional support.

KRA Penalties & Compliance Rules for 2026: Avoid Fines and Legal Trouble

KRA's enforcement posture in 2026 is more aggressive than ever, powered by data analytics and cross-system integration. Understanding the penalty regime is not optional — it's essential.

Late Filing vs. Late Payment — Two Different Penalties

These are frequently confused. Late filing of a return attracts a penalty of 5% of the tax due or KES 2,000 (for individuals), whichever is higher. Late payment of tax due attracts a 5% one-off penalty plus 1% interest per month on the outstanding balance.

So if you file on time but don't pay, you'll face the late payment charges. If you pay but don't file, you'll still face the late filing penalty. You need to do both — on time.

KRA also has the power to conduct tax investigations and assessments going back five years for standard cases, and seven years for cases involving fraud or negligence. This means your 2021 records need to be safely stored.

Freelancer & Gig Economy Tax Guide Kenya 2026: How to Report & Pay Tax

The gig economy is booming in Kenya. From Uber and Bolt drivers to Upwork developers, content creators, and online tutors, hundreds of thousands of Kenyans are now earning income outside of traditional employment. KRA has firmly set its sights on this sector in 2026.

Do Gig Workers Really Need to File Returns?

Yes — absolutely. If you earn any income, regardless of whether it comes from a formal employer, you are required to have a KRA PIN and file an annual income tax return. There are no exemptions for gig workers or freelancers.

The good news is that as a freelance or self-employed individual, you can deduct legitimate business expenses — data costs, equipment, professional subscriptions, home office costs (proportionate) — before arriving at your taxable profit.

Practical Steps for Freelancers to Stay Compliant in 2026

Start by separating your business and personal finances — open a dedicated business account or at minimum maintain clear M-Pesa records. Keep receipts for all business expenses. At year-end, calculate your gross income, deduct allowable expenses, and declare the net profit on your individual income tax return. If your turnover exceeds KES 5 million, register for VAT. If it's below that, consider whether Turnover Tax at 3% on gross turnover is simpler and more beneficial for your situation.

Digital Services Tax (DST) in Kenya 2026: What Tech Platforms and SMEs Should Know

Kenya was among the first African countries to introduce a Digital Services Tax, and 2026 sees its continued enforcement and expansion.

DST applies at 1.5% of the gross transaction value of digital services offered in Kenya by non-resident persons or entities. This covers services like online advertising, streaming platforms, ride-hailing apps, e-commerce facilitation, and cloud computing services where the provider has no physical presence in Kenya.

Who Is Affected by DST?

If you're a non-resident digital platform earning income from Kenyan users, DST applies to you. But here's what many Kenyan SMEs don't realise: if you're a resident business providing digital services, you fall under the standard income tax and VAT regimes rather than DST — but you still need to be declaring that digital income.

For Kenyan tech startups and app developers earning revenue from within Kenya, the standard corporate or individual income tax rules apply. DST is specifically targeted at the non-resident digital economy.

How to Register and Remit DST

Non-resident entities liable for DST must register on iTax, file monthly DST returns, and remit the tax by the 20th of the following month. KRA has been increasingly engaging with foreign platforms directly, and failure to comply can result in being blacklisted from operating in the Kenyan digital market.

Kenyan businesses using foreign digital services — such as paying for Google Ads, AWS, or Shopify — should be aware that these costs may now carry embedded DST, which can sometimes be claimed as a business expense.