The Finance Bill 2026 has sent shockwaves through the private sector and Kenyan households alike. While the National Treasury frames the bill as a strategy to enhance revenue through compliance and base-broadening, a closer look at the fine print reveals a series of aggressive tax hikes that many experts describe as a direct assault on the digital economy and the middle class.
The most controversial centerpiece of the bill is the proposal to impose a 16% Value Added Tax (VAT) on digital financial services, including mobile money transactions and platform-based banking.
However, we must call a spade a spade: the government’s latest tax proposal is a regressive move that ignores the reality on the ground. Forcing a 16% VAT onto mobile money, the very lifeblood of Kenyan commerce, is a dangerous gamble for several reasons.
Firstly, it represents a crushing blow to the consumer. Kenyans are already battling record-high inflation, soaring fuel prices, and expensive electricity. Adding a tax to how people pay their bills and send money home is not just an economic burden; it’s an act of friction in an already struggling economy.
Secondly, there is the issue of the broken promise of 2026. Perhaps most frustrating is the breach of public trust. The government explicitly promised that there would be no new tax increases in 2026, pledging instead to focus on widening the tax base through better compliance. To pivot toward a massive VAT hike on digital services feels like a betrayal of that commitment.
Finally, this move risks reversing years of progress. High taxes on mobile money risk driving people back to cash. This would undo a decade of progress in financial inclusion and transparency, the very things the Treasury needs to grow the tax base long-term.
Targeting the informal and housing sectors
Beyond the digital sphere, the Bill casts a wide net over areas previously seen as safe havens or sectors requiring incentives:
- The Rental Squeeze: In a move that will likely lead to higher rent prices, the bill proposes increasing the Monthly Rental Income (MRI) tax from 7.5% to 10%. This 33% increase in the tax rate reverses previous policy trends aimed at encouraging landlords to formalize their income.
- The “Mitumba” Tax: The bill introduces an income tax on the importation of second-hand clothing (mitumba) at 1.5% of the customs value. For millions of Kenyans who rely on the informal apparel trade for both livelihoods and affordable clothing, this is seen as a direct tax on the poor.
- Scrap Metal and Horse Racing: The Treasury is looking into every corner for revenue, introducing a 1.5% Withholding Tax on scrap metal sales and new excise duties on horse racing.
It isn’t just the rates that are changing; the rules of engagement are becoming more rigid. The Bill proposes shortening the deadline for filing annual income tax returns from June to April. Furthermore, it seeks to change the calculation of dispute timelines from working days to calendar days. This subtle change significantly reduces the time taxpayers and legal teams have to respond to KRA assessments, effectively tilting the playing field in favor of the tax collector.
The only reprieve offered in the document is a proposed tax amnesty. The bill suggests waiving interest and penalties for tax liabilities accrued up to December 2025, provided the principal tax is settled by the end of 2026. While this may offer some relief to struggling businesses, critics argue it is a small olive branch in a bill otherwise defined by heavy-handedness.