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Finance Act 2026 in Kenya: What Changed for SMEs (Complete Guide)

📅 11 August 2026 · ✅ Last verified: 12 October 2026 · 📖 10 min read · Tax & KRA
Black Kenyan professional reviewing marked-up Finance Act 2026 policy notes beside a calculator
Original editorial artwork; no official interface or endorsement depicted.

The Finance Act, 2026 was signed into law and is in operation from 1 July 2026. It is one of the most SME-relevant Finance Acts in recent years: it brings a 100% penalty amnesty, expands withholding tax to payment networks and digital platforms, shortens return-filing windows, and introduces a formal reporting framework for digital assets. Here is what Kenyan small businesses actually need to know.

1. The 100% Tax Amnesty (biggest win for SMEs)

The Act reinstates a full amnesty on interest, penalties and fines for tax liabilities accrued on or before 31 December 2025 — provided you settle the principal tax on or before 31 December 2026.

💡 What this means: if you carry old KRA penalty balances, the penalties and interest can be waived in full — you only pay the original tax. The window runs from 1 July 2026, and KRA offers flexible iTax payment plans for the principal amount. Talk to a tax adviser before the window closes.
  • Who: taxpayers with historical liabilities accrued up to 31 December 2025
  • What's waived: interest, penalties and fines — 100%
  • What's not: the principal tax itself
  • Deadline: settle principal on or before 31 December 2026

2. Withholding Tax Expanded to Payment Networks

The Act expands the definitions of management or professional fees and royalties so that they now capture:

  • Card interchange fees and merchant service fees (paid to issuing banks)
  • Payments for access to digital platforms, payment networks and payment-processing systems
  • Software distribution arrangements with regular payments through distributors
⚠️ Check your payments: if your business pays card processors, payment apps or digital platforms, part of those fees may now carry withholding tax obligations. Confirm the classification with KRA or a tax adviser — see our Withholding Tax guide for rates.

3. Return Filing Window Changes for Some Taxpayers

From 1 January 2027, section 52B gives every individual four months after the income year to file and every other person six months after the accounting period. KRA’s implementation guidance also includes self-employed people and partnerships in the four-month group. The Act does not explicitly name partnerships in that clause, so read that treatment as KRA guidance. For a calendar-year individual, the fourth-month filing date is 30 April; confirm the relevant accounting period and KRA guidance before applying it to a partnership.

4. Non-resident rental income: new registration and filing framework

Section 6B creates a final-tax framework for rent earned by a non-resident person from property in Kenya. The non-resident must use KRA’s simplified registration framework and file and pay by the 20th day of the following month. That filing rule does not apply where a resident receives the rent on the non-resident’s behalf and tax is withheld under section 35(1)(c).

The separate resident Monthly Rental Income (MRI) regime remains 7.5% of gross rent, effective 1 January 2024, for a resident individual or company earning more than KES 288,000 and no more than KES 15 million a year from residential property. A resident may elect in writing to use the annual income-tax regime. KRA FAQ 438 and an older paragraph on KRA’s rental page still show 10%; the current enacted rate and KRA’s updated rental section support 7.5%, and the Finance Act 2026 did not raise the resident MRI rate.

5. KRA Gets Pre-Populated Returns

The Act empowers KRA to use pre-populated data in tax positions and returns. Expect more of your income and expense data to appear automatically in iTax — and fewer excuses for mismatches between what KRA sees and what you file.

6. Digital Assets (Crypto) Reporting Framework

KRA's Finance Act summary lists a requirement for virtual asset service providers to file an information return. The exact scope, commencement and record duties depend on the enacted provision and subsequent guidance; do not assume that every crypto holder has the same obligation. See our guide on iTax filing for general reporting context.

7. Targeted 2027 rate for non-resident petroleum contractors

From 1 January 2027, section 24(b) of the Finance Act changes the rate from 37.5% to 30% only for a non-resident company that is a petroleum contractor under paragraph 7 of the Ninth Schedule to the Income Tax Act. It is not a general rate cut for all non-resident companies, foreign suppliers or investors.

8. Other Changes Worth Knowing

  • Mortgage-interest, betting/gaming and excise/import provisions are described in the Act and KRA summary, but their application depends on the exact taxpayer, product and effective-date conditions. Confirm the relevant provision and current KRA guidance before relying on a benefit, withholding treatment or rate.

9. VAT bad-debt refunds: three years for ordinary unpaid debts

For the ordinary unpaid-debt route, a registered supplier that accounted for and paid VAT may apply after three years from the supply if the customer has not paid. A separate route applies if the customer has been placed under statutory management through an administrator, receiver or liquidator; that route is not subject to the ordinary three-year wait. Applications remain subject to the Tax Procedures Act and must be made within ten years from the supply. This is an application for a refund, not an automatic refund or guaranteed payment date.

10. What You Should Do This Week

  1. Pull your KRA ledger and identify any penalty/interest balances from 2025 or earlier — the amnesty waives them if you settle principal by 31 Dec 2026
  2. List every payment-network, card or digital-platform fee you pay — check if withholding now applies
  3. Prepare tax records early and check the 2027 filing period that applies to you, including KRA guidance for partnerships
  4. Confirm your MRI classification if you earn rental income

Frequently Asked Questions

When did the Finance Act 2026 take effect in Kenya?

The Finance Act, 2026 was enacted and is in operation from 1 July 2026, except for a few provisions with later effective dates (some changes apply from 1 January 2027). Always check the specific provision and any subsequent guidance.

What is the Finance Act 2026 tax amnesty in Kenya?

It is a 100% waiver of interest, penalties and fines on tax liabilities accrued on or before 31 December 2025, provided the principal tax is settled on or before 31 December 2026. KRA offers flexible payment plans for the principal. The window opened on 1 July 2026.

Does the Finance Act 2026 affect M-Pesa or card payment fees?

Yes — the definitions of management or professional fees and royalties were expanded to capture card interchange fees, merchant service fees, and payments for access to digital platforms, payment networks and payment processing systems. Businesses paying these fees may now face withholding tax obligations.

Did the Finance Act 2026 change tax return filing deadlines?

Section 52B, effective 1 January 2027, gives every individual four months after the income year to file and every other person six months after the accounting period. KRA implementation guidance also places self-employed people and partnerships in the four-month group. The Act does not explicitly name partnerships in that clause, so follow the applicable KRA guidance and accounting period.

What is the resident MRI rate?

For a resident individual or company earning gross rent from residential property of more than KES 288,000 and not more than KES 15 million a year, the resident MRI rate is 7.5% of gross rent, effective 1 January 2024. A person may elect in writing to use the annual income-tax regime. KRA FAQ 438 and an older paragraph on KRA’s rental page still show 10%; those are outdated statements, not a second current enacted resident rate.

Who is affected by the new non-resident rental rule?

Section 6B applies to a non-resident person earning rent from property in Kenya. The person must use KRA’s simplified registration framework and file and pay by the 20th day of the following month. That filing rule does not apply where a resident receives the rent on the non-resident’s behalf and tax is withheld under section 35(1)(c).

Did the Act reduce the rate for all non-resident companies?

No. From 1 January 2027, section 24(b) changes the rate from 37.5% to 30% only for a non-resident company that is a petroleum contractor under the Ninth Schedule to the Income Tax Act. It is not a general rate cut for foreign companies or suppliers.

Does every unpaid VAT invoice need to wait three years before an application?

No. The three-year period applies to the ordinary route where the customer has not paid. A separate route applies if the customer has been placed under statutory management through an administrator, receiver or liquidator. An application must still be made within ten years of the supply and is subject to the Tax Procedures Act; a refund is not automatic.

Related Guides

⚠️ Disclaimer: This guide is for informational purposes and is accurate as of 12 October 2026. Kenyan tax and labour rules change through Finance Acts and Gazette notices — always verify current rates on the official websites (KRA, Ministry of Labour, Kenya Gazette) or consult a qualified professional before acting.

Sources and update record