The Finance Act, 2026 introduced important changes to Withholding Tax (WHT) affecting scrap metal payments, winnings, and dividends paid to citizens of EAC Partner States.
1. Scrap Metal — 1.5% WHT
A 1.5% withholding tax was introduced on the sale of scrap metal. The WHT applies to the gross amount of the payment.
If scrap metal was sold for KES 1,000,000:
1.5% × KES 1,000,000 = KES 15,000 WHT
The seller would receive KES 985,000, while KES 15,000 would be withheld and remitted as tax.
2. Winnings — 20% WHT
A 20% withholding tax was also introduced on winnings. This applies to payouts from lotteries and prize competitions by persons licensed under the Gambling Control Act, 2025.
If winnings were KES 100,000:
20% × KES 100,000 = KES 20,000 WHT
The winner would receive KES 80,000 after withholding tax.
Important: The Finance Act's definition of “winnings” did not retain the Finance Bill's wording that expressly excluded the amount staked or wagered. This creates uncertainty as to whether the 20% WHT should apply to the gross payout or only the actual gain.
3. EAC Dividends — The 5% Preferential Rate Was Removed
Previously, dividends paid to citizens of EAC Partner States enjoyed a preferential 5% withholding tax rate.
The Finance Act, 2026 removed this preferential 5% rate. Dividends paid to EAC citizens will now fall under the standard 15% WHT rate applicable to non-residents.
Before: EAC citizen receiving dividends from Kenya → 5% WHT
Now: EAC preferential rate removed → 15% WHT
What Does This Mean for You?
- Scrap metal buyers need to account for the 1.5% WHT on qualifying payments.
- Licensed lottery and prize-competition operators need to account for the 20% WHT on winnings.
- Companies paying dividends to EAC citizens need to review WHT calculations following removal of the 5% preferential rate.
- Businesses should ensure the correct WHT is deducted, accounted for, and remitted to KRA.
Tax changes can directly affect the amount of money you receive or pay. Understanding them helps you stay compliant and avoid surprises.
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