Understanding the new tax measures, compliance obligations and your legal options when challenging a Kenya Revenue Authority decision.
Kenya’s tax landscape continues to evolve, and businesses, investors, employers and individual taxpayers must keep pace with changes to their legal obligations. The Finance Act 2026 introduced amendments affecting income tax, value added tax (VAT), excise duty, tax administration and other areas of revenue collection.
President William Ruto assented to the Finance Bill on 23 June 2026, bringing it into law as the Finance Act 2026. Most of its amendments took effect on 1 July 2026, although certain provisions have different commencement dates.
For businesses, these changes are more than a matter of accounting. They can affect pricing, cash flow, contractual arrangements, tax reporting and exposure to penalties. Understanding the new requirements is therefore essential for effective financial planning and legal compliance.
This article examines selected changes introduced by the Finance Act 2026, explains what they mean in practice and outlines the legal options available to taxpayers who disagree with decisions made by the Kenya Revenue Authority (KRA).
1. Understanding the Finance Act 2026
The Finance Act 2026 amended several statutes governing taxation and public revenue, including the Income Tax Act, the Value Added Tax Act, the Excise Duty Act and the Tax Procedures Act.
The amendments address different aspects of the tax system, from the treatment of specific transactions to the administration, collection and enforcement of tax obligations.
Not every provision affects every taxpayer. The practical impact depends on the nature of a person’s income, the activities of a business, the transactions undertaken and the specific statutory provisions applicable to that taxpayer.
Businesses should therefore avoid relying exclusively on general summaries of the Act. Reviewing the provisions relevant to their industry and operations is a more effective way to identify compliance requirements and potential risks.
2. Key Tax Changes Businesses Should Understand
Several amendments deserve particular attention because of their potential implications for business operations, tax planning and financial reporting.
A. Changes affecting withholding tax
The Finance Act 2026 introduced changes to the treatment of certain payments for withholding tax purposes.
For example, the amendments include a 1.5% withholding tax on scrap metal transactions and changes affecting payments associated with card payment networks and services. The Act also changed the withholding tax treatment of certain winnings.
These changes may affect businesses operating in scrap metal trading, financial services, payment processing and other relevant sectors.
Businesses making payments that fall within withholding tax provisions should confirm whether they are required to deduct and remit tax, determine the applicable rate and maintain supporting documentation.
Failure to comply with withholding tax obligations may result in additional tax liabilities, penalties and interest.
What businesses should do: Review supplier and customer payment arrangements, update accounting systems where necessary and confirm the correct tax treatment before processing affected transactions.
B. Changes to Value Added Tax
The Finance Act 2026 introduced amendments to VAT treatment in selected areas, including labour outsourcing services, digital payment services, hire purchase arrangements and refunds relating to bad debts.
For instance, the Act clarifies the treatment of employee-related costs in certain labour outsourcing arrangements. It also specifies conditions under which finance charges may be excluded from the taxable value of qualifying hire purchase transactions.
The period for claiming a VAT refund on bad debts has also been extended from two years to three years.
These changes may affect how businesses structure transactions, issue invoices, calculate VAT and document claims for refunds.
Businesses should not assume that an arrangement previously treated as exempt or outside the scope of VAT will necessarily retain the same treatment under the amended law.
What businesses should do: Review VAT classifications, invoicing procedures, customer contracts and refund documentation. Where a transaction involves a complex VAT question, obtain professional advice before adopting a particular tax treatment.
C. New documentation requirements for importers
Importers face an important documentation requirement introduced by the Finance Act 2026.
From 1 September 2026, importers must obtain and retain an export declaration, export entry, customs export certificate or an equivalent document from the country of export to support the importation of goods into Kenya.
The supporting documentation should contain relevant transaction details, including information about the exporter, importer, description and quantity of goods, value, tariff classification and country of export.
Failure to produce satisfactory records when requested by KRA may affect the verification of customs values, ownership, origin, deductions, exemptions or refund claims.
For businesses that regularly import goods, this requirement makes documentation management an important aspect of tax compliance.
What importers should do: Communicate the requirement to overseas suppliers, establish procedures for collecting the necessary documents and retain records in an organised and accessible form.
D. Changes affecting income tax and return filing
The Finance Act 2026 also introduced changes affecting income tax administration, including individual return filing timelines.
From 1 January 2027, individual taxpayers will be required to file their annual income tax returns by the last day of the fourth month after the end of the year of income. For individuals whose year of income ends on 31 December, this means a filing deadline of 30 April.
Companies and other non-individual taxpayers generally continue to file their returns by the last day of the sixth month following the end of their accounting period.
The Act also provides for pre-populated tax returns using information available to KRA. Taxpayers should review the information supplied, verify its accuracy and make any necessary corrections before confirming or submitting a return.
A pre-populated return should not be treated as a substitute for the taxpayer’s own review of income, expenses, deductions and other relevant information.
What taxpayers should do: Maintain accurate records throughout the year, reconcile tax information with supporting documents and establish a filing calendar that reflects the applicable deadlines.
The changes discussed above are selected examples rather than a complete account of the Finance Act 2026. Businesses should confirm the relevant provisions, commencement dates and applicable KRA guidance before making tax decisions.
3. What Happens When a Taxpayer Disagrees with KRA?
The issuance of a tax assessment or other adverse tax decision does not mean a taxpayer has no legal options.
Kenyan law provides mechanisms through which taxpayers may challenge tax decisions, present supporting evidence and seek a review of the position taken by the tax authority.
However, these mechanisms are subject to statutory requirements and strict timelines. A taxpayer who believes a decision is incorrect should act promptly rather than assume that discussions with KRA automatically suspend the applicable deadlines.
Step 1: Review the tax decision
The first step is to establish exactly what KRA has decided and the legal and factual grounds for that decision.
A taxpayer should examine the assessment or notice, the relevant tax period, the calculations involved and the documents relied upon by KRA.
The review may reveal that the dispute concerns an incorrect calculation, omitted information, a disagreement over the interpretation of tax legislation or the treatment of a particular transaction.
Identifying the precise issue helps determine the appropriate response.
Step 2: Lodge a formal objection where applicable
Under section 51 of the Tax Procedures Act, a taxpayer who wishes to dispute a tax decision generally must lodge a notice of objection within 30 days of being notified of that decision.
The objection must satisfy the statutory requirements, including setting out the grounds of objection, the amendments sought and the reasons supporting those amendments. Relevant documents must also be provided as required by law.
Where a taxpayer cannot meet the ordinary deadline, the law provides a mechanism for applying for an extension in qualifying circumstances. An extension should not be assumed to have been granted unless the relevant requirements have been satisfied.
A well-prepared objection should do more than state that the assessment is unfair. It should explain why the taxpayer considers the decision incorrect and support that position with relevant facts, records and legal arguments.
Step 3: Consider the objection decision
The Tax Procedures Act generally requires KRA to issue an objection decision within 60 days after receiving a valid notice of objection. If KRA does not issue its decision within the prescribed period, the statutory consequences under the Act may apply.
The taxpayer should examine the outcome carefully, including the reasons given by KRA and any revised assessment.
If the objection is rejected, allowed only in part or otherwise resolved unfavourably, the taxpayer may have grounds to pursue the matter further through the prescribed appeal process.
Step 4: Appeal to the Tax Appeals Tribunal
A taxpayer dissatisfied with an objection decision may generally appeal to the Tax Appeals Tribunal within 30 days of being notified of the decision, subject to the applicable statutory requirements.
The Tribunal provides a forum for resolving tax disputes outside the ordinary court process at first instance.
An appeal requires careful preparation. The taxpayer must identify the issues in dispute, establish the relevant facts and present the legal arguments and supporting evidence.
For appeals relating to assessments, the Tax Procedures Act also contains requirements concerning payment of tax that is not in dispute or an arrangement with the Commissioner for its payment.
Taxpayers should obtain advice on the applicable procedural and payment requirements before filing an appeal.
Step 5: Consider further legal remedies
A party dissatisfied with a decision of the Tax Appeals Tribunal may, where the law permits, appeal to the High Court. Such appeals are generally limited to questions of law and must comply with the applicable procedural requirements.
Depending on the nature of the dispute, other lawful mechanisms may also be relevant.
The appropriate route depends on the decision being challenged, the grounds relied upon and the remedies available under the applicable legislation.
4. Can the Constitutionality of a Tax Law Be Challenged?
The enactment of a tax law does not automatically place every provision beyond judicial scrutiny.
The Constitution of Kenya establishes principles governing public finance, legislation, taxation and the exercise of public power. Where a taxpayer or other person with the necessary legal standing has a properly founded basis for arguing that an enacted law violates the Constitution, a constitutional challenge may be available.
However, such proceedings must be directed at an appropriate legal issue and brought through the correct procedure.
A challenge to a proposed law before enactment raises different questions from a challenge to legislation that has already become law. Equally, disputing the application of a tax provision to a particular assessment is not necessarily the same as challenging the constitutionality of the provision itself.
Understanding this distinction is important when deciding how to approach a tax dispute.
5. What the Recent High Court Decision on the Finance Bill 2026 Means
The importance of choosing the correct legal procedure was highlighted by a recent High Court decision involving the Consumer Federation of Kenya (COFEK).
COFEK filed a petition on 15 June 2026 challenging provisions of the Finance Bill 2026 while Parliament was still considering the proposed legislation.
The petition raised concerns about several proposed measures, including withholding tax on scrap metal, reporting requirements relating to virtual assets, KRA’s enforcement powers and changes to VAT treatment.
The Finance Bill subsequently passed through Parliament and was assented to by the President on 23 June 2026, becoming the Finance Act 2026.
On 6 October 2026, the High Court struck out COFEK’s petition as premature. The court held that, when the petition was filed, the challenged provisions were still part of a Bill undergoing the legislative process and had not yet become enforceable law.
The court also rejected the argument that the original petition could automatically continue as a challenge to the subsequently enacted Finance Act.
Importantly, the decision did not determine that every provision of the Finance Act 2026 is constitutional. Instead, it addressed the timing and legal basis of the proceedings before the court.
The distinction is significant. A person seeking to challenge an enacted law must direct the proceedings at that law and comply with the relevant legal requirements.
The decision illustrates a broader lesson for businesses and taxpayers: even where concerns about a tax measure appear substantial, choosing the correct legal procedure and commencing proceedings at the appropriate stage are essential.
It also reinforces the importance of distinguishing between a challenge to legislation itself and a dispute concerning the way KRA has applied that legislation to an individual taxpayer.
6. Tax Compliance Is Also a Business Risk Management Issue
Tax compliance should not be treated as an isolated accounting responsibility. It is an important part of managing a business’s legal and financial risks.
A tax dispute can affect cash flow, delay transactions, create uncertainty in financial reporting and expose a business to additional liabilities.
The risk can be particularly significant where businesses enter into long-term commercial arrangements without considering how tax changes may affect their obligations.
For example, a contract may allocate responsibility for taxes, require one party to deduct withholding tax or specify whether the agreed price includes VAT. If the parties have not clearly addressed these matters, a subsequent disagreement may arise over who bears the additional cost.
Businesses should therefore review relevant commercial agreements alongside their tax compliance procedures.
This may involve checking tax clauses, invoicing arrangements, indemnities, record-keeping obligations and provisions governing changes in applicable law.
Where a tax change materially affects an existing agreement, the parties should consider whether the contract provides a mechanism for addressing the resulting financial or legal consequences.
7. Practical Steps Businesses and Taxpayers Should Take
In light of the Finance Act 2026, businesses and individual taxpayers should consider taking the following steps:
Review applicable tax obligations. Identify the amendments relevant to the business, industry, income sources and transactions.
Update accounting and reporting procedures. Ensure that invoicing, withholding tax, VAT calculations and return preparation reflect the applicable requirements.
Maintain reliable records. Keep invoices, contracts, payment records, import documentation and other evidence required to support tax positions.
Monitor statutory deadlines. Establish procedures for meeting filing, payment, objection and appeal deadlines.
Review commercial agreements. Confirm that tax-related clauses adequately address the allocation of tax responsibilities and the consequences of changes in applicable law.
Respond promptly to KRA notices. Examine assessments and other tax decisions as soon as they are received. Seek professional assistance where necessary rather than allowing a deadline to pass.
Obtain legal advice where a dispute arises. Professional advice can help establish whether an objection, appeal, alternative dispute resolution process or constitutional challenge is appropriate.
Taking these steps can help businesses reduce avoidable compliance risks and respond more effectively when a tax dispute occurs.
Conclusion: Be Proactive About Your Tax Obligations
The Finance Act 2026 reinforces the need for businesses and taxpayers in Kenya to remain informed about changes in tax legislation and understand how those changes affect their operations.
From withholding tax and VAT to import documentation and return filing, the practical implications vary depending on the taxpayer’s circumstances. A general understanding of the law is useful, but effective compliance requires attention to the specific provisions that apply to each transaction and business activity.
The recent High Court decision involving COFEK also demonstrates that the legal procedure used to challenge a tax measure can be as important as the underlying argument. Taxpayers who disagree with a KRA decision should understand the available remedies, observe the applicable deadlines and ensure that their objections or appeals are properly supported.
Ultimately, sound tax compliance is not merely about meeting statutory obligations. It is also about protecting business interests, managing financial exposure and making informed commercial decisions.
Businesses and individuals who require assistance interpreting tax legislation, reviewing tax-related contractual obligations or challenging a tax decision should consider obtaining advice from a qualified legal professional.
Hansen Advocates can use this evolving legal landscape as an opportunity to help clients understand their rights and obligations, assess potential exposure and navigate tax-related legal issues through the appropriate channels.
Disclaimer: This article is provided for general informational purposes and does not constitute legal or tax advice. The application of the Finance Act 2026 depends on the relevant statutory provisions, commencement dates, facts and circumstances of each case. Readers should obtain professional advice before acting on the information discussed.