Former Law Society of Kenya President Faith Odhiambo has raised concern over the Finance Bill 2026, saying the proposed tax changes could push up the cost of living and make it harder for businesses to comply with tax rules.
She says the Bill, now in Parliament after being published on April 30, carries a mix of reforms, but several of its tax proposals may place extra pressure on households, traders, and small enterprises.
In a post on X on Friday, Odhiambo pointed out that the Bill sets out to collect Sh3.63 trillion for the 2026/27 financial year and plans to widen the fiscal deficit to 5.3% of GDP, up from 4.7% the previous year. She notes that while the targets are “not unreasonable,” the bigger issue is how the burden is shared among taxpayers.
One of her main concerns is the change in tax filing timelines. The Bill moves the income tax return deadline to April 30, cutting the current filing window by two months, while nil returns are pushed to January 31. She argues this leaves little time for proper audit work, cash flow planning, and compliance, especially for small businesses.
She adds, “this is not administrative reform. It is an additional compliance cost they can ill afford.”
Odhiambo also raises issues with the proposed tax treatment of mitumba imports. The Bill introduces a new Section 12H in the Income Tax Act, which assumes a 5% profit on customs value and requires payment before goods are released by the Kenya Revenue Authority. She says this means a trader bringing in goods worth Sh1 million would pay Sh50,000 whether or not they make profit or loss, calling the approach unfair.
On housing income, she notes the proposal to increase tax on residential rental income from 7.5% to 10%, warning that without strong enforcement systems, the move could lead to more tax evasion rather than better collection.
She further cautions against changes affecting digital financial services, saying removal of VAT exemptions on money transfers and payment processing could raise costs for services widely used by Kenyans. She adds that this may weaken financial inclusion.
Another concern is the inclusion of interchange and merchant service fees under withholding tax rules for management and professional fees. She warns this could increase compliance pressure on automated banking systems, with costs likely passed to businesses and consumers.
The Bill also allows Kenya Revenue Authority to treat at least 60% of a company’s undistributed income as dividends for tax purposes. Odhiambo says this does not consider reinvestment plans or working capital needs and could discourage investors.
She also flags a proposed 25% excise duty on mobile phones, saying phones are now essential for communication, banking, and access to government services.
At the same time, she notes disappointment that expected PAYE reforms and tax band adjustments to ease pressure on salaried workers are missing from the Bill.
Despite her concerns, she acknowledges some positive measures, including a cut in corporate tax for non-resident companies from 37.5% to 30%, extension of tax amnesty to December 2025, and VAT exemptions on electric buses, bicycles, medical equipment, animal feed raw materials, and infrastructure under public-private partnerships.
She also welcomes clarification on trust taxation and exemption of gratuity contributions from income tax, describing them as positive steps.
Odhiambo urges Parliament to carefully review the Bill, saying lawmakers should not pass it without close scrutiny of each clause to avoid past problems linked to tax legislation.