The Finance Act 2026 was signed into law on 23 June 2026. Most of its measures took effect on 1 July 2026, and a few start on 1 January 2027. It is a long Act, and much of it targets specific sectors such as mining, aviation and betting. These are the changes we expect most of our clients to notice.
Penalties for not using KRA’s electronic systems
Where KRA has given notice and a taxpayer still does not use the required electronic systems for invoicing, filing or payment, a penalty now applies. It is the higher of 5% of the tax due, or KES 100,000 for a company and KES 10,000 for an individual. The Commissioner can also waive penalties and interest of up to KES 2 million where an error in KRA’s own system caused the liability.
KRA can use eTIMS and third-party data to assess you
In tax avoidance cases, KRA can now raise its own assessment using your PAYE and withholding declarations, eTIMS invoice data, returns filed by other people, inspections and whistleblower information. In practice, this means the figures in your returns need to agree with what your customers, suppliers and employees are reporting.
Prepopulated returns
KRA can now generate returns with figures already filled in. You have to confirm or correct them within the period that will be set by regulations. Accepting a prepopulated return without checking it is a risk, because the figures come from KRA’s data, not your books.
VAT changes worth knowing
- Fees and commissions for digital and platform financial services are no longer exempt. They are now charged VAT at 16%.
- The window for claiming VAT relief on bad debts has been extended from two years to three.
- If your supplies change from taxable to exempt, you must repay the input VAT you claimed on stock that is still unsold.
Individual returns will be due earlier
From 1 January 2027, individual income tax returns are due by the last day of the fourth month after the year end. For most people that means 30 April instead of 30 June. Employees whose only income is their salary no longer have to pay instalment tax.
A tax amnesty with a December deadline
Penalties and interest on tax for periods up to 31 December 2025 are waived if the full principal tax is paid by 31 December 2026. We have written a separate note on the amnesty.
What to do now
Check that your invoicing runs through eTIMS, reconcile your returns against what KRA can see, and diarise the new individual return date. If you are not sure how a change affects you, send us your details and we will look at it with you.