Kenya Airways Faces Higher Costs as Finance Bill 2026 Ends Tax Relief
Nairobi, 4 May 2026
Kenya’s Finance Bill 2026 removes crucial tax exemptions for Kenya Airways, potentially increasing operational costs for essential overseas services including aircraft maintenance and compliance frameworks. The bill simultaneously expands digital taxation to capture cryptocurrency platforms, payment systems, and software services, while introducing new levies on mobile phone activation and gambling winnings. Despite earlier promises, proposed PAYE reductions for salaried workers have been dropped from the legislation, leaving employees waiting for tax relief that was expected to exempt the first £200 of monthly earnings from income tax.
Aviation Industry Bears Burden of Tax Reform
The Finance Bill 2026’s most significant impact on Kenya Airways stems from the proposed deletion of Paragraph 1(lii) from Section 35 of the Income Tax Act [1]. This amendment would eliminate the withholding tax exemption currently granted to the national carrier on payments made to non-resident service providers for specialised technical, maintenance, compliance, training, and digital systems support services [1]. The exemption currently applies where such services are unavailable in Kenya or where the foreign provider is certified by an international regulatory, licensing, or standard-setting body - conditions that are commonplace in the aviation industry due to strict global safety and operational standards [1]. The removal of this exemption could expose Kenya Airways to additional tax costs on essential overseas technical partnerships, including aircraft maintenance systems, compliance frameworks, aviation software, and internationally accredited training programmes [1].
Digital Economy Under New Tax Framework
Beyond aviation, the Finance Bill 2026 significantly broadens Kenya’s taxation reach into the digital economy through comprehensive redefinitions of taxable services [1][3]. The bill expands the definition of ‘management or professional fee’ to include interchange fees and merchant service fees from card-based transactions, effectively bringing more digital payment-related charges into the tax bracket [1]. Perhaps more substantially, the proposed amendments redefine ‘royalty’ to cover software, whether proprietary or off-the-shelf, including licence, development, training, maintenance, and support fees [1]. The new royalty definition also encompasses proprietary digital platforms, payment-card systems, payment processing systems, switching systems, clearing systems, and settlement systems, regardless of whether payments are made regularly or per transaction [1]. This expansion could increase tax obligations for payment processors, software firms, banks, and digital commerce operators whose infrastructure underpins Kenya’s growing cashless economy [1].
Cryptocurrency and Virtual Assets Face Regulatory Scrutiny
The Finance Bill 2026 introduces a formal taxation framework for virtual assets like cryptocurrencies, requiring virtual asset service providers to report comprehensive user and transaction details to the Kenya Revenue Authority [3]. Providers operating trading platforms must disclose full records of their operations, with severe penalties for non-compliance [3]. False information submission can lead to fines up to Ksh100,000 or imprisonment up to three years, whilst failure to file returns may attract penalties of up to Ksh1 million [3]. The Tax Procedures Act is being amended to insert new sections after section 6B, requiring virtual asset service providers to file information returns if they facilitate exchange transactions, provide trading platforms on behalf of customers, or act as counterparties or intermediaries in such transactions [3]. Kenya also aims to enter international agreements for automatic exchange of virtual asset information as part of broader efforts to improve cross-border tracking of cryptocurrency transactions and prevent tax evasion [3].
New Levies Target Consumer Goods and Gambling
The Finance Bill 2026 introduces several new taxation measures affecting everyday consumers and specific industries [4]. Smartphones and communication devices will attract a 25% excise duty upon activation [4]. A 5% deemed profit tax on the customs value of imported mitumba goods will be treated as taxable income at the point of importation, with the bill stating that ‘a tax shall be payable by a person in respect of income derived from the importation into Kenya of worn clothing, worn footwear, and other worn articles classified under tariff heading 6309’ [4]. The gambling sector faces new taxation through a 20% withholding tax on winnings, with all funds deposited for gambling considered taxable [4]. Additionally, the Treasury proposes a 10% tax adjustment on plastic products and 5% on coal, alongside new adjustments to alcohol, tobacco, and sugar-related products [4]. Fruit juices are set to attract a per-litre excise duty of between Ksh14 and Ksh20, depending on sugar content, whilst vegetable juices and similar beverages also fall under the new tax regime [4].
PAYE Relief Postponed Despite Earlier Promises
Despite initial expectations, the Finance Bill 2026, published on 1 May 2026, does not include the proposed reduction of Pay As You Earn (PAYE) tax rates [2]. The National Treasury had initially planned to table PAYE reduction proposals as a standalone measure in February 2026, but indicated they would be included in the Finance Bill 2026 [2]. No explanation has been provided for the exclusion of the PAYE reduction proposals from the current bill [2]. The President had previously approved the Treasury’s plan for zero PAYE on the first Ksh30,000 earned by salaried Kenyans and a reduction of the PAYE rate from 30% to 25% on the next Ksh20,000 [2]. Treasury Cabinet Secretary John Mbadi may now prepare a Tax Laws (Amendment) Bill to effect the PAYE reviews at a later date [2]. The bill does introduce stricter compliance measures, with income tax returns now due by the last day of April following the end of the income year, whilst taxpayers filing nil returns will be required to submit them within one month after the close of their accounting period [2][3].