Nairobi, Kenya — 25th May 2026: Today, the Kenya Private Sector Alliance (KEPSA), along with its member Business Membership Organisations (BMOs), submitted the private sector’s consolidated position and recommendations on the Finance Bill 2026 to the National Assembly Departmental Committee on Finance and National Planning. This represented a joint advocacy effort, collectively speaking for a cross-cutting reach of over 2 million businesses across every sector of the Kenyan economy.
In a press conference co-organised with the Kenya Bankers Association (KBA) at the Glee Hotel in Kiambu County, KEPSA stated that the Finance Bill 2026 arrives at a critical juncture for Kenya’s fiscal architecture. “As private sector actors, we fully support the government’s Bottom-Up Economic Transformation Agenda (BETA). However, structural economic stability demands an intentional balance between aggressive domestic revenue mobilisation and the preservation of private sector competitiveness,” said Dr. Jas Bedi, KEPSA Chairperson, while delivering the joint private sector press statement.
KEPSA noted that while the National Exchequer aims to expand ordinary revenue collection to a projected KSh 3.38 trillion for the 2025/2026 fiscal cycle, data from the latest Kenya National Bureau of Statistics (KNBS) Economic Survey highlights profound structural vulnerabilities. High production costs have suppressed the formal economy, leaving formal sector employment at a mere 16.2% of total jobs (3.5 million workers), while the informal sector handles an overwhelming 83.8% burden (18.1 million workers).
According to KEPSA, true revenue growth is a by-product of expanding this economic base, not intensifying tax rates on a shrinking pool of formal taxpayers. Consequently, KEPSA’s advocacy position is anchored on three immutable strategic pillars:
- Enhancing Global and Regional Competitiveness: We must align our tax regime with East African Community (EAC) Common External Tariff (CET) bands to prevent capital flight and insulate local supply chains against regional neighbors like Ethiopia and Rwanda, which offer highly predictable fiscal frameworks.
- Creating and Protecting Jobs: Reversing structural weaknesses in the labor market requires a tax regime that removes unclaimable input tax burdens that force staff layoffs, automated downscaling, or complete corporate closures.
- Enhancing Government Revenue Legitimately: Keeping tax rates predictable and simplifying compliance will naturally encourage informal enterprises to formalise and sustainably grow ordinary tax revenues.
KEY CONCERNS, PROPOSALS, AND INDUSTRY ALIGNMENTS PRESENTED BY KEPSA
While KEPSA highly appreciates collaborative “wins” in the Bill, such as the Tax Amnesty Extension, the removal of import VAT references from the Tax Procedures Act, and the reduction of excise duty on Extra Neutral Alcohol (ENA), several central proposals threaten to create significant deadweight loss for the economy.
1. Protecting Workers’ Purchasing Power (PAYE)
Salaried Kenyans have faced a severe erosion of purchasing power, highlighted by a 10.7% to 12% decline in real wages due to inflation and cumulative tax additions like the Affordable Housing Levy (1.5%) and SHIF (2.75%).
KEPSA proposes amending the Third Schedule of the ITA to compress and expand the bands so that the maximum PAYE rate is capped at 30% (down from 35%), while increasing monthly personal relief to KSh 3,000 to set a tax-free threshold of KSh 30,000.
“This 5% relief would inject KSh 28.1 billion back to workers, boosting household spending, increasing indirect tax collection, reducing non-performing loans (NPLs), and driving a GDP output boost of approximately KSh 210 billion in the first year. This consumption-led growth will ultimately generate KSh 27.1–31.5 billion in tax revenue, completely offsetting the initial shortfall while creating thousands of jobs,” said Mr Raimond Molenje, CEO, Kenya Bankers Association (KBA).
2. Safeguarding Digital Financial Services and Financial Inclusion
Clause 31 of the Bill proposes to remove the broad VAT exemption on money dealings and financial services, imposing a 16% VAT on digital payment processing, transfers, and merchant acquiring services supplied by Payment Service Providers (PSPs). Concurrently, Clause 2 seeks to expand Withholding Tax (WHT) to card network interchange fees within the Merchant Discount Rate (MDR) by reclassifying operational settlement flows as “royalties” or “management fees”.
KEPSA strongly demands the absolute deletion of these amendments. VAT must track final consumption, not intermediate inputs; taxing digital processing triggers a cascading tax effect that increases transaction costs and the cost of doing business. Furthermore, the WHT proposal explicitly attempts to legislatively reverse the Supreme Court of Kenya’s decision in Barclays Bank of Kenya Limited (now ABSA) v Commissioner of Domestic Taxes.
Overturning judicial decisions creates legal uncertainty, erodes public confidence in the rule of law, and risks discouraging investment in payment infrastructure. Combined with the proposed VAT, the total tax cost on a 100 KES MDR would jump from 15 KES to 53.4 KES, threatening the fiscal viability of digital payment systems, driving vendors back into informal cash channels, and directly contradicting the National Payment Strategy 2022-2025.
3. Preserving Manufacturing, E-Mobility, and Aviation Hub Status
The current draft introduces severe operational hurdles for our primary industrial, environmental, and transit engines:
- The Valuation Crisis in Shipping & Hospitality Cash Flows: The rigid application of statutory timelines forces hotels and shipping lines to advance output VAT to the KRA on uncollected revenue or incomplete service In the hospitality sector, advance bookings and bundled services strain liquidity.
The Private Sector proposes a comprehensive amendment to Section 12 of the Value Added Tax Act, 2013, to establish that across all sectors, the “Time of Supply” shall be the earliest of the date of completion of the service, delivery, or final payment settlement. Realignment with cash realization prevents hotels and shipping lines from using scarce operational capital to remit VAT on invoices that corporate or government clients have not yet settled.
- The Manufacturing “Tax on Production”: The introduction of a 25% or KSh 50/KG excise duty on unbleached Kraft paper, where no local manufacturer exists, will increase agricultural packaging costs by 42%, instantly rendering fresh vegetable exports uncompetitive. Moving pest control products from zero-rated to exempt leaves producers with 16% unclaimable input VAT, which will inevitably drive-up food prices.
- The Aviation Gateway Threat: The removal of VAT exemptions on aircraft and parts under Chapter 88 subjects the aviation sector to a cumulative “triple threat” of 16% VAT, Import Declaration Fee (IDF), and Railway Development Levy (RDL) re-applications. Subjecting specialized equipment to these levies will drive fleet technical services and cargo consolidation straight out of Kenyan borders to regional competitors.
- The Green Economy Contraction: Clauses 31(a)(ix) and 32(f) seek to remove VAT exemptions for electric motorcycles, bicycles, and lithium-ion batteries. KEPSA strongly demands the deletion of these proposals to keep e-mobility options cost-accessible and attract ESG-focused international investment.
4. Ensuring Fair Tax Administration (Tax Procedures Act)
Section 45 of the Bill proposes to delete Section 42(14)(e) of the Tax Procedures Act (TPA), stripped-down protection that currently bars the Commissioner from issuing aggressive agency notices or freezing bank accounts while a tax decision is actively under appeal before the High Court or other superior courts.
KEPSA flatly rejects this deletion and demands its complete reinstatement. Forcing account freezes mid-litigation forcefully drains corporate liquidity before a court can rule on a case’s merits. This renders the constitutional right to a fair hearing and appeal completely illusory, violating Article 47 and Article 50 of the Constitution.
On procedural fairness and system offsets, it further opposes shifting the statutory calculation of timelines from “working days” to standard “calendar days,” which unfairly compresses the window for taxpayers to object to complex technical audits. The private sector actively proposes a statutory amendment to Section 47 of the TPA to compel the KRA to reconfigure the iTax platform to technologically allow the seamless, automated offset of overpaid tax credits against wider internal liabilities, including PAYE, VAT, and Withholding Tax, without requiring manual approvals.
CLARION CALL
KEPSA’s message to the Departmental Committee on Finance and National Planning and to the floor of Parliament today is clear and unwavering: Parliament must ensure that the Finance Bill, 2026, acts as a definitive catalyst for industrialisation and job creation, not an insurmountable barrier to entry. “By refining these clauses, removing unclaimable input burdens, and maintaining statutory safe harbours, we can move our national fiscal policy away from a desperate regime of ‘taxing for survival’ and embrace a progressive, predictable framework of ‘taxing for growth’. This is how we secure Kenya’s position as the undisputed competitive heart of the East African Community,” concluded Dr. Bedi.
KEPSA Business Member Organizations present at the press conference included Kenya Bankers Association (KBA), Kenya Association of Manufacturers (KAM), Shippers Council of Eastern Africa, Pharmaceutical Society of Kenya, British Chamber of Commerce of Kenya, Kenya Association of Air Operators, Retail Trade Association of Kenya (RETRAK), Kenya Association of International Schools, Kenya Flower Council (KFC), and the Kenya Association of Women in Tourism. The full list of KEPSA Members (Business Member Associations and Corporations) can be accessed here.
Notes to the Editor.
- Summary of the Consolidated KEPSA Finance Bill 2026 Submissions.
- The Detailed KEPSA Proposals on the Finance Bill 2026 Submitted to the National Assembly Departmental Committee on Finance and National Planning on May 25th, 2026.
About the Kenya Private Sector Alliance (KEPSA)
The Kenya Private Sector Alliance (KEPSA) is the apex body of the private sector in Kenya, bringing together businesses, business associations, and chambers of commerce to shape public policy, drive partnerships, and advance sustainable economic growth. Representing a reach of over 2 million businesses — from startups and SMEs to large local enterprises and multinational corporations with a base in Kenya. KEPSA serves as a unified voice of the private sector and a platform for creating economic value, social impact, and environmental sustainability through both its industry and foundation arms.
KEPSA is also the focal point for the East African Business Council (EABC) in Kenya and hosts the International Chamber of Commerce (ICC Kenya), strengthening Kenya’s integration into regional and global business networks. At KEPSA, we lead from the front. Our greatest impact comes when we push boundaries, move the envelope, and turn partnerships into action.
For more information, please visit: http://www.kepsa.or.ke
Contact: Josephine Wawira – jwawira@kepsa.or.ke
About Kenya Bankers Association (KBA)
The Kenya Bankers Association (KBA) is the umbrella body for all commercial banks in Kenya and is regulated by the Central Bank of Kenya (CBK). Established on 16th July 1962, KBA represents 46 member institutions with combined assets exceeding KES 7.7 trillion. Its core mandate is to promote a stable, competitive, and inclusive banking industry by influencing legislation, regulation, and policy to enhance access to affordable credit for individuals, households, and businesses. KBA also drives financial sector development through strategic initiatives, including the launch of Pesalink, the industry’s first peer-to-peer digital payments platform. In partnership with the CBK and other stakeholders, KBA has spearheaded projects such as the modernization of the National Payments System, implementation of the Real Time Gross Settlement System (RTGS), and the Kenya Credit Information Sharing Initiative. Guided by its brand statement, “One Industry. Transforming Kenya,” KBA continues to strengthen the banking sector, foster innovation, drive financial inclusion, and support national economic growth. Learn more: www.kba.co.ke
Contact: Christine Onyango – canyango@kba.co.ke
