Kenya’s Finance Bill 2026 marks a strategic shift in fiscal policy, with the government prioritising expansion of the tax base and structural reforms over headline tax increases.
The government says the move is aimed at stabilising public finances while sustaining economic growth.
The Bill departs from past approaches that leaned heavily on direct tax hikes, instead targeting under-taxed sectors and modernising revenue collection frameworks.
At the core of the reforms is a push to bring more of the digital and informal economy into the tax net. This includes clearer taxation of income derived from digital platforms, payment systems and software-related royalties, areas that have historically operated in regulatory grey zones.
The government is also introducing targeted tax measures on specific sectors with significant but under-captured financial flows. Among the notable proposals is a 20 per cent tax on gambling winnings, as well as the inclusion of scrap metal transactions within withholding tax frameworks.
Another key area is the second-hand clothing (mitumba) trade, where authorities propose a deemed profit margin of five per cent for taxation purposes. While the move is expected to spark political debate, policymakers argue it is designed to enhance predictability and fairness in a sector long characterised by inconsistent tax treatment.
Despite concerns over the rising cost of living, the Bill maintains tax exemptions on essential commodities such as basic food items, signalling an effort to shield low-income households even as revenue collection expands elsewhere.
Fuel taxation remains a sensitive issue, particularly around the Road Maintenance Levy. However, the government has proposed mitigating measures, including a temporary reduction of VAT on fuel from 16 per cent to 8 per cent and adjustments to fuel-related levies, in a bid to cushion consumers against global price shocks.
Beyond taxation, the Bill underscores a broader fiscal consolidation agenda. The government targets revenues of approximately Ksh3.63 trillion in the 2026/27 financial year, up from Ksh3.4 trillion previously, while aiming to gradually reduce the fiscal deficit from 5.3 per cent of GDP to 3.3 per cent over the medium term.
A notable structural shift is the introduction of new financing models, including the establishment of a National Infrastructure Fund and plans for a Sovereign Wealth Fund. These initiatives are intended to reduce reliance on direct taxpayer funding by leveraging private capital and public asset monetisation to drive development.
Amid the proposals, challenges remain, particularly in enforcing compliance within informal and digital sectors, as well as navigating external economic pressures such as high global oil prices.
Read: Mitumba Prices Set to Rise as Government Proposes 5% Import Tax
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