The Kenyan government has introduced major tax reforms that will significantly affect businesses starting in 2026. These changes were made through the Finance Act 2025 and the Tax Laws (Amendment) Act, 2024, under President William Ruto’s administration. The aim is to raise more revenue, improve tax compliance, and strengthen the country’s economy.
The National Treasury, working with the Kenya Revenue Authority (KRA), plans to collect KSh 3.32 trillion in the 2025/2026 financial year. This amount includes KSh 2.75 trillion from taxes, KSh 567 billion from appropriations-in-aid, and KSh 46.9 billion from grants. To achieve this target, the government has introduced new taxes and adjusted existing ones.
One key reform is the introduction of Advance Pricing Agreements (APAs). Starting January 1, 2026, non-resident companies doing business with related Kenyan firms, or firms operating in preferential tax regimes, will be required to follow these agreements. This move is meant to reduce tax avoidance by multinational companies.
Another major change is the introduction of withholding tax on goods supplied to public entities. From July 1, 2025, suppliers of goods to government bodies will be required to pay withholding tax, ensuring better tax collection from public procurement.
The Finance Act 2025 also introduces withholding tax on payments made through digital marketplaces. In addition, betting and gaming earnings will now be taxed at the point of withdrawal rather than winnings. A 5% withholding tax will apply to withdrawals, widening the tax base in the fast-growing digital and betting sectors.
To support businesses, the government has reintroduced the diminution allowance. Companies can now claim a 100% allowance on items such as utensils and tools in the year they are purchased. This change will especially benefit sectors like hospitality by reducing upfront costs.
However, some changes tighten tax rules. Losses incurred from the transfer of property can no longer be carried forward to offset future gains. The law also introduces a five-year limit on how long tax losses can be deducted, increasing pressure on businesses to return to profitability sooner.
The new laws also require companies to declare and pay tax on dividends distributed from untaxed profits. Businesses must now assess such dividends in their self-assessment returns and pay the required tax within six months after the end of their financial year.
For companies operating in Special Economic Zones (SEZs), gains from property transfers within an SEZ by licensed developers or operators will be exempt from capital gains tax. This is meant to encourage investment in these zones.
Large multinational companies will also be affected by the minimum top-up tax. Firms with global annual revenues of at least €750 million (about KSh 113 billion) will be required to pay extra tax if their effective tax rate is below 15%. This tax must be paid by the fourth month after the end of the company’s financial year.
Looking ahead, the Treasury has already started preparations for the 2026/2027 budget. Treasury Cabinet Secretary John Mbadi has invited members of the public, government institutions, and civil society groups to submit proposals. These views will help shape the Finance Bill 2026.
Overall, the new tax reforms are expected to reshape Kenya’s business landscape in 2026 by increasing government revenue, improving fairness in taxation, and encouraging compliance, while also presenting new challenges for businesses operating in the country.
