Finance Act 2026: What Changed for Kenyan SMEs on 1 July

The Finance Bill 2026 was signed into law and most of its changes took effect on 1 July 2026. Some are quiet technical amendments — but several reach straight into the till, the payroll and the price list of an ordinary Kenyan SME. Here is what actually changed, in plain language.

Card and mobile payment fees now carry extra tax

The biggest surprise for most businesses. Fees charged by payment service providers — payment processing, merchant acquiring, gateways and aggregators — were previously VAT-exempt. From 1 July 2026 they attract VAT at 16%. On top of that, interchange and merchant service fees are now treated as management or professional fees, subject to withholding tax at 5% when paid to a resident provider (20% for non-residents).

You will not file anything new yourself in most cases — but expect providers to pass these costs through. If your customers pay mainly by card, paybill or till, check your merchant statements from July onwards and factor any higher fees into your pricing.

E-invoicing failures now have a fixed price

Failing to comply with electronic tax invoicing (eTIMS) or electronic filing obligations now attracts a penalty of 5% of the tax due, with a minimum of KES 100,000 for a company and KES 10,000 for an individual. We have written a full guide on how the penalty works and how to stay out of its way — read KRA's new e-invoicing penalty explained.

KRA can now pre-fill your tax returns

The Commissioner can generate prepopulated returns using the data KRA already holds — your eTIMS sales, your suppliers' invoices, employer submissions. Convenient, but treat a pre-filled return the way you would treat a bank statement: verify every line before you submit. Accepting figures you have not reconciled is how disputes start.

Excise changes that touch real businesses

If you run a restaurant, juice bar, bakery, kiosk or hardware business, these input costs moved:

Sugar-heavy menus and imported-timber joinery will feel this within a supply cycle or two. Review supplier quotes before renewing them.

Good news: gratuity can now be tax-free

Gratuity paid to an employee is exempt from tax where the employee has served under a contract of at least three years and the gratuity does not exceed 31% of their pay over the contract period. If you pay end-of-contract gratuities, structure them with these limits in mind — it is one of the few genuinely employee-friendly changes this year.

Also worth knowing

• VAT bad-debt relief: the window to claim a refund of VAT on bad debts extends from 2 to 3 years.
• Winnings: withholding tax on winnings is back at 20%.
• Scrap metal: withholding tax reintroduced at 1.5%.
• System failures: KRA can waive penalties and interest of up to KES 2 million where the cause was a malfunction of an electronic tax system — keep evidence when iTax or eTIMS is down.

Five actions to take this quarter

1. Compare merchant and payment provider fees before and after July — reprice if they have been passed through.
2. Confirm your eTIMS invoices are actually transmitting, not just being generated.
3. Re-quote sugar, juice concentrate and imported timber inputs before renewing supplier contracts.
4. Review employment contracts if you pay gratuities — the 3-year / 31% exemption is worth structuring for.
5. Put 30 April 2027 in the diary now for every individual return in the business.