Finance Act 2026 Explained: Key Highlights

Following the enactment of the Finance Act, 2026, several important changes emerged during the parliamentary review process. While public attention focused on the major tax proposals, a number of practical amendments were introduced after consultations with stakeholders, making the final law different from the original Finance Bill.

1. Better Clarity on Bad Debt Deductions

Banks, microfinance institutions, SACCOs, and licensed money lenders now have clearer guidance on claiming tax deductions for bad debts. This provides greater certainty when computing taxable profits and reduces disputes during tax audits.

2. VAT Treatment of Labour Outsourcing Costs

Employee-related costs incurred under labour outsourcing or employee placement arrangements are now treated as disbursements for VAT purposes. Businesses providing outsourced staffing services should review how they invoice clients and account for VAT to ensure compliance with the new treatment.

3. Relief for Large Investors

The Act introduces a special transition rule for investors who had invested at least KES 10 billion before 1 July 2025. These qualifying taxpayers can continue carrying forward eligible tax losses until they are fully utilized instead of being restricted by previous time limitations.

4. Stronger Investment Incentives in Energy Infrastructure

To encourage investment in strategic infrastructure, businesses investing more than KES 10 billion in petroleum or gas storage facilities can now qualify for a 100% first-year investment allowance. Eligible investors can claim the entire capital allowance in the first year, improving project cash flows and supporting investment in Kenya's energy sector.