Kenya | Finance Bill 2026, proposed tax amendments

Kenya | Finance Bill 2026, proposed tax amendments

Kenya's Finance Bill 2026, published by the National Assembly on 30 April 2026, proposes amendments to income tax, withholding tax, VAT, and excise duty, with most changes expected to take effect from 1 July 2026, subject to presidential assent by 30 June 2026.
  • PAYE rates, income bands, and thresholds remain unchanged; the anticipated zero-rate on the first KES 30,000 and the new 25% band were not included in this Bill.
  • A separate Tax Laws (Amendment) Bill may introduce PAYE changes at a later stage.
What is changing
Employee gratuity, income tax exemption
  • From 1 July 2026, employer contributions to an employee gratuity scheme are exempt from income tax where:
    • the employment contract is for at least 3 continuous years, and
    • total contributions do not exceed 31% of the employee's basic salary.
  • Contributions that exceed the 31% cap remain subject to income tax.
Employee mortgage interest deduction
  • From 1 July 2026, employees may now also deduct interest of up to KES 360,000 per year paid on loans advanced by the Central Bank of Kenya for the construction, purchase, or improvement of a residential property occupied by the employee. Previously, the Central Bank was not included in the list of approved Financial Institutions.
  • The deduction applies to the employee’s gains or profits from employment and reduces the taxable income on which PAYE is calculated.
Tax return filing deadlines
  • From the 2026 year of income, the annual income tax return deadline changes from 30 June to 30 April (4 months after year-end); the first return affected falls due 30 April 2027.
  • Nil returns will be due by 31 January (1 month after year-end); first nil return affected: 31 January 2027.
KRA extended the assessment period
  • From 1 July 2026, KRA may issue revised assessments covering up to 5 years back, extended from the current 3-year window.
Important notes
  • All proposed changes are subject to parliamentary approval and presidential assent, expected by 30 June 2026.
Official source

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