Introduction
The Finance Bill 2026, (“the Bill”) was tabled before the National Assembly on 30th April 2026 and published on 5th May 2026.
The Bill focuses more on compliance and incentives as well as expanding the tax base and strengthening collection of digital taxes. The Bill proposes measures that will bring into taxation income earned by non-resident landlords, withholding tax on betting & digital taxation. It also aims to reduce the deadline for filing tax returns to 30th April each year, as opposed to 30th June, as is currently the case.
A. INCOME TAX ACT
The Finance Bill 2026 proposes to amend the Income Tax Act, Chapter 470, (ITA) as follows:
1. Definition Section
1.1 Immovable property
The Bill proposes to amend the definition of the term “immovable property” by removing the word “and” and replacing it with “or”. This amendment clarifies that the two conditions set out therein are intended to operate independently and as alternative grounds for determining whether property qualifies as immovable property. Accordingly, it will now be sufficient if either condition is met.
1.2 Expanded definition of Management or Professional Fee
The Bill proposes to expand the definition of “management or professional fee” to include interchange fees and merchant service fees arising from transactions that use a card as a means of payment.
This proposed amendment is designed to expand definition of management or professional fees to include interchange fees and merchant fees accruing from card payments transactions. It is meant to remedy the ambiguity cited by the Supreme Court under section 2 of the Income Tax Act. It is largely influenced by the Supreme Court decision in the case of Barclays Bank of Kenya Limited (now Absa Bank Kenya plc) V Commissioner for Domestic Taxes (Large Taxpayers Office) where the Supreme Court held that interchange fees paid by an acquiring Bank to an Issuing bank cannot be classified as management or professional fees subject to withholding tax.
If this proposal sees the light of day, interchange fees paid by an acquiring bank to an issuing bank will be classified as management or professional fees subject to withholding tax. This will increase the cost of card-based transactions, likely to be passed on to merchants and consumers, thereby directly undermining Kenya’s cashless economy agenda.
1.3 Expanded Definition of Royalty
The Bill proposes to amend the ITA by expanding the definition of royalty. This proposal technically is tailored to broaden the tax base when it comes to the chargeability of Withholding tax on payment systems. Unlike the usual norm where royalty is charged on intellectual property (“IP”), the proposal intends to broaden the charge of royalty taxes on digital payment and processing processes.
It is highly likely that this proposal is informed by the recent Supreme Court decision in the case of Barclays Bank of Kenya Limited (now Absa Bank Kenya plc) V Commissioner for Domestic Taxes (Large Taxpayers Office) where the apex Court held that payments made by Acquiring Banks to Card Companies do not constitute royalties.
The proposal contradicts OECD Model Tax Convention Article 12 commentary, which limits “royalties” to payments for IP rights and not operational network access fees. Uganda and Tanzania exclude such payments from royalties; Kenya will be diverging from EAC practice. The proposal, if passed into law, will increase costs for fintechs, banks, and any business using digital payment infrastructure.
1.4 Proposed Definition of Withdrawals
The Bill proposes to amend the ITA by deleting the current definition of withdrawals and substituting it with a new definition. The definition is proposed to change from “withdrawn from a wallet” to “paid or disbursed to the account of a player.” This amendment also seeks to align the definition with the Gambling Control Act, 2025, which replaced the former Betting, Lotteries and Gaming Act.
If the proposed bill is passed it will widen the tax base on gambling payouts. Previously, only wallet withdrawals attracted the 5% withholding tax (“WHT”) under the Third Schedule. The new language captures any payment to a player thus closing the loophole where operators might structure payouts outside traditional wallets.
1.5 Proposed Definition of Winnings
The Bill proposes to introduce a new the definition of the term winnings as “a pay-out, by a person licensed under the Gambling Control Act, 2025, from a lottery or prize competition, but does not include the amount staked or wagered.”
Taxation of gambling winnings is not a novel idea; taxation of winnings was first introduced by the Finance Act 2011 which introduced 20% withholding tax on winnings. This proposal was, however, dropped and later re-introduced via the Finance Act 2014. However, there was an ambiguity on whether the withholding tax should be applied on the gross amount of a player winnings or net winnings.
Currently, there is blanket taxation in which a gambler’s and/or a player’s withdrawals also include the player’s own deposited funds, and not just net winnings. This proposal will therefore mitigate such blanket taxation of winnings in Kenya’s gambling industry.
Please click here to download the alert.
