The Finance Bill, 2026, comes at a pivotal moment in Kenya’s fiscal and regulatory landscape, as the government intensifies its focus on revenue mobilisation and tax administration efficiency. The National Assembly Departmental Committee on Finance and National Planning is currently conducting public participation on the Bill, with stakeholder submissions due by Monday, 25 May 2026, ahead of Parliament’s expected consideration upon resumption from recess on 26 May 2026. In line with Kenya’s budget cycle, the Bill is anticipated to be enacted by 30 June 2026, before the commencement of the new financial year. A sectoral analysis of the proposed measures highlights their differentiated impact across key industries. These are telecommunications, manufacturing, financial services and gambling sectors. 

Telecommunications 

The Finance Bill, 2026, marks a pronounced shift toward an enforcement-led tax framework in Kenya, with particular emphasis on bringing the digital and financial economy more fully into the tax net. Within this broader policy direction, the telecommunications and mobile money sectors are positioned at the centre of the reforms, facing higher tax exposure, revised exemptions, and expanded compliance and reporting obligations. 

A key area of impact is the mobile hardware and handset market, where excise duty on mobile phones is proposed to increase sharply from 10% to 25%. In a significant structural change, the Bill removes the “imported” qualifier, extending the duty to locally assembled devices and effectively eliminating the prior tax advantage enjoyed by domestic manufacturers. In addition, the point at which excise liability arises is being shifted from importation or factory release to the moment of device activation. This introduces a usage-based taxation model that will likely require close data integration between the Kenya Revenue Authority (KRA) and telecommunications operators to accurately track device activation. To partially offset the increased tax burden, the Bill proposes exemptions for imported phones from the Import Declaration Fee (IDF) and the Railway Development Levy (RDL). 

The VAT treatment of mobile phones is also being restructured. Devices that were previously zero-rated are now being reclassified as exempt, affecting both imported and locally purchased handsets. While this change does not result in VAT being charged directly to consumers at the point of sale, it has important downstream implications for industry players, since exempt supplies do not allow manufacturers and importers to recover input VAT on their costs. As a result, the reform is likely to increase production and procurement costs, with a corresponding upward pressure on retail prices. 

Manufacturing 

The manufacturing sector is set to operate in a more challenging fiscal environment under the Finance Bill, 2026. While the Bill contains several policy objectives aimed at revenue mobilisation and environmental reform, it introduces a combination of higher production costs, expanded excise duties, and stricter compliance requirements that could reshape industrial competitiveness. 

A key concern is the proposed shift from VAT zero-rating to VAT exemption for a range of manufactured goods and inputs. Although exempt supplies are not subject to VAT charged to consumers, manufacturers lose the ability to claim input tax on raw materials, utilities, and services used in production. This change will likely translate into higher production costs, which manufacturers may pass on to consumers through increased prices. Products affected include inputs for animal feeds, raw materials for pharmaceutical manufacturing, transportation of sugarcane, and locally assembled mobile phones. In addition, green energy products such as electric buses, motorcycles, bicycles, and lithium-ion or solar batteries are also expected to move into the exempt category, potentially raising costs in emerging sustainable industries. 

The Bill also proposes a significant expansion and increases in excise duties on locally manufactured goods. New excise obligations include a 10% duty on plastic articles, while gummed or self-adhesive paper will attract either 25% or KSh200 per kilogramme, whichever is higher. Locally processed sugar confectionery will be taxed at KSh85.82 per kilogramme. Beverage manufacturers face additional pressure, with fruit juices containing added sugar increasing from KSh14.14 to KSh20 per litre, and small independent brewers experiencing a rise to KSh22.50 per centilitre of pure alcohol. The excise duty on mobile phones is also proposed to increase sharply from 10% to 25%, although liability will arise at the point of phone activation, potentially improving short-term cash flow for manufacturers. 

Another significant concern relates to regional sourcing under the East African Community (EAC) framework. The Bill proposes to subject goods originating from EAC Partner States to excise duty despite existing preferential trade arrangements. This will increase input costs for manufacturers relying on regional materials such as furniture, printing ink, float glass, plastics, and paper, with cost increases estimated between 15% and 35%. This could weaken regional integration and reduce the competitiveness of EAC-origin inputs compared to imports from outside the region. 

The Bill further introduces administrative and compliance challenges for manufacturers. A key measure is the requirement to repay input tax previously claimed when goods transition from taxable to exempt status, particularly affecting unsold stock. Additionally, the introduction of a deemed dividend rule requiring at least 60% of undistributed profits to be treated as dividends may limit manufacturers’ ability to reinvest earnings into expansion and capital development. Compliance pressure is also set to increase due to a reduction in income tax filing deadlines from six months to four months after year-end, requiring faster financial reporting and stronger internal systems. The introduction of a 1.5% withholding tax on scrap metal sales adds another layer of taxation on industrial by-products. 

Finally, the Bill introduces broader fiscal and environmental measures that indirectly affect manufacturing. VAT exemptions previously granted to affordable housing and large tourism developments will now be standard rated at 16%, potentially slowing construction-linked manufacturing demand. Additionally, a 5% excise duty on coal aims to discourage its use in industrial production, aligning with environmental sustainability goals but increasing energy costs for energy-intensive manufacturers. 

Overall, the Finance Bill, 2026, presents a mixed outlook for the manufacturing sector, balancing revenue and environmental objectives against rising costs, tighter compliance demands, and reduced tax efficiency across key industrial value chains. 

Financial Services  

The Bill significantly broadens the tax base for fintech and payment infrastructure providers, reflecting a more comprehensive effort to bring digital financial services within the formal tax net. While person-to-person mobile money transfers remain exempt, a new 16% VAT is introduced on digital platform services. This applies to a wide range of services including payment processing, settlement, merchant acquiring, payment gateways, and aggregation services where these are delivered through a software or platform on a fee basis. 

In parallel, the definition of “royalty” is expanded to capture payments made for the use of proprietary digital platforms, payment networks, and switching systems. These payments will now attract withholding tax at 5% for residents and 20% for non-residents, increasing the tax exposure for both local and cross-border digital infrastructure arrangements. 

The Bill also revises the treatment of card-based payment charges by redefining “management or professional fees” to include interchange fees and merchant service fees. This change is intended to address long-standing interpretational disputes between the Kenya Revenue Authority and financial institutions, but it is likely to translate into higher overall transaction costs within the card payments ecosystem. 

In addition, the virtual assets sector is formally brought within the tax and regulatory perimeter. A 10% excise duty is introduced on fees charged for virtual asset transactions, while Virtual Asset Service Providers (VASPs) are required to submit annual information returns detailing user activity. The compliance framework is further tightened through significant penalties, including a Ksh 1 million fine for failure to file returns and the possibility of imprisonment for providing false or misleading information. 

The Gambling Sector 

The gambling sector is being progressively integrated into a more comprehensive and tightly defined tax framework by introducing significant amendments across income tax, excise duty, and withholding tax provisions. The reforms reflect a shift toward clearer classification of gaming transactions and a broader tax base aligned with the Gambling Control Act, 2025. 

A key feature of the Bill is the formal distinction between “withdrawals” and “winnings,” with both terms more precisely defined for tax purposes. “Withdrawals” are defined broadly to include any money, cash equivalent, or monetary value disbursed to a player by a licensed operator, and these amounts will generally attract a 5% withholding tax. In parallel, the Bill reintroduces “winnings” as a distinct taxable category, primarily covering payouts from lotteries and prize competitions, which will now be subject to a higher 20% withholding tax for both resident and non-resident recipients. Notably, winnings are defined on a net basis, excluding the original stake or wager, ensuring taxation applies only to actual gains rather than gross payouts. 

The Bill also materially restructures the application of excise duty within the sector by expanding the taxable trigger beyond deposits into betting wallets. Instead, excise duty will apply to any amount deposited for betting or gambling purposes, irrespective of whether the activity occurs through digital platforms or physical gaming environments. This broadens the scope of taxation across the entire gambling value chain. Additionally, the proposed removal of the existing exemption for horse racing brings all bets on horse racing within the standard 5% excise duty regime, further widening the tax net for the sector.