What Has Changed?
The Finance Act, 2026 retained the structured framework introduced in the Finance Bill, 2026 for dealing with failure to comply with electronic tax system requirements.
However, the penalty framework was revised.
Under the Finance Act, the penalty is now based on the higher of:
- 5% of the tax due
- KES 100,000 for companies and other non-individuals
- KES 10,000 for individuals
This replaces the earlier Bill proposal, which would have imposed a penalty based on the higher of twice the tax due, KES 100,000, or KES 10,000 for individuals.
Reasonableness Before Penalties
Before imposing a penalty, the Commissioner is required to consider factors including:
- Whether the failure resulted from circumstances beyond the taxpayer’s control.
- Whether there was wilful neglect or deliberate default.
- Whether the taxpayer took reasonable steps to comply as soon as possible.
This recognises that electronic tax compliance can sometimes be affected by system outages, integration challenges and data validation issues.
What This Means for Taxpayers
Taxpayers should maintain proper:
- Compliance records.
- Documentation.
- Audit trails.
- Evidence of reasonable efforts to comply.
These can be important where non-compliance results from technical or system-related challenges.
For companies, the KES 100,000 minimum penalty may create significant exposure even where the underlying tax involved is small or there is little tax at risk.
Key Takeaway
Electronic tax compliance is not just about filing. Taxpayers should also keep evidence showing their efforts to comply and promptly document any technical or system-related difficulties.
Source: Finance Act, 2026 — Section 86, Tax Procedures Act, Cap. 469B.
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