Treasury Cabinet Secretary John Mbadi will today (June 11) present the National Budget statement for the 2026/27 Financial Year. The KSh4.82 trillion budget is the largest in Kenya’s post-independence history.

This comes even as the Finance Bill 2026 was tabled before the National Assembly on May 5, and the public participation exercise already concluded.The Bill is the legal framework that contains specific tax policies, revenue-raising measures, and amendments to tax laws needed to fund the KSh4.82 trillion budget.

Here are the proposed tax policies and amendments to tax laws contained in the Bill…

Easing pump prices

Did you know that the Finance Bill 2026 proposes to amend the Road Maintenance Levy Fund Act by reducing the allocation to the Annuity Fund from KSh 3 per litre to KSh 1.50 per litre of fuel.  

The proposal, contained in the Road Maintenance Levy Fund (Amendment) Bill, 2026, which is currently before Parliament, banks on the basis that no new projects will be undertaken under the annuity model, and that the revised allocation will be sufficient to meet existing annuity obligations. The adjustment will also support the implementation of the approved securitisation framework.

The proposal will increase the allocation to the fuel levy collection account from KSh 22 per litre to KSh 23.50 per litre, thereby enhancing resources available for road maintenance and related financing obligations.

Bottomline is, by reducing the portion of the levy earmarked for annuity road projects, the government is effectively easing pressure on pump prices and provide motorists with slight relief, without necessarily eliminating the levy itself.

Making REITS affordable to investors

The Finance Bill 2026 also proposes to amend the Stamp Duty Act to exempt the transfer of a beneficial interest in property to a Real Estate Investment Trust (REIT).

The proposal is intended to reduce the cost of setting up or restructuring REITS, support growth of the REIT market, deepen real estate capital markets, and encourage investment in the housing and property sector.

In essence, the proposal seeks to make Real Estate Investment Trust (REITS) more attractive and affordable for investors. Lower costs will make it easier for investors to put money into housing, commercial buildings, and other property projects, supporting housing development, and creating jobs in the construction and property sectors.

Making mobile phones affordable

The Finance Bill 2026 proposes to simplify the taxation framework for mobile phones by replacing the multiple taxes and levies currently applicable with a single 25 percent excise duty charged at the point of activation.

Mobile phones are currently subject to several taxes and levies, including 16 percent VAT, 10 percent excise duty, 25 percent import duty, 2.5 percent Import Declaration Fee, and 2 percent Railway Development Levy. These taxes and levies create an aggregate tax burden of approximately 55.5 percent under the current framework.

The proposal is therefore not intended to introduce a new tax on mobile phones. Rather, it seeks to rationalize the existing framework by replacing the fragmented tax structure with a single excise duty. Under the proposed framework, mobile phones will no longer be subject to VAT, Import Declaration Fee, Railway Development Levy and import duty, thereby simplifying the tax structure and lowering the overall tax burden applicable to mobile phones.

The shift of the tax point to activation is intended to improve enforcement, reduce concealment and undervaluation at importation, and promote fair treatment between imported and locally assembled phones.

Effectively, the Bill can help more Kenyans afford smartphones, access online services, mobile banking, digital jobs, and learning opportunities.

Clean water more accessible

In a bid to make clean water more accessible to Kenyans, the Finance Bill 2026 proposes to remove excise duty on bottled water.

The assumption is that bottled water is now widely consumed by many Kenyans, particularly in urban areas and while away from home. It is no longer consumed mainly as a luxury product.

The proposal reflects changing consumption patterns and forms part of the broader rationalization of the excise duty framework.

Taxing gaming

The Finance Bill 2026 proposes to amend the Excise Duty Act to include gaming within the definition of amounts deposited into customer wallets.

Currently, the provision refers to amounts deposited into a customer’s betting wallet, but does not expressly refer to gaming wallets. This creates an inconsistency because online gaming platforms, including online casino games, similarly require customers to maintain wallets.

The proposal is therefore intended to correct the omission, ensure consistent treatment of betting and gaming activities, and support effective administration of excise duty on online gaming platforms.

Bottomline is, the proposal wants to fix a missing part in the law, make sure betting and gaming businesses are treated the same, and help the government properly collect excise tax from online gaming platforms.

Increasing tobacco rates

The Finance Bill proposes to increase excise duty rates on selected tobacco products whose rates are specific and based on weight, and are therefore affected by inflation. These rates have not been reviewed since 2022.

The affected products are other manufactured tobacco and manufactured tobacco substitutes, homogeneous and reconstituted tobacco, tobacco extracts and essences, cigars, cheroots and cigarillos containing tobacco or tobacco substitutes. The rate for other manufactured tobacco and related products is proposed to increase from KSh11,382.48 per kilogram to KSh12,550 per kilogram. The rate for cigars, cheroots and cigarillos is proposed to increase from KSh16,260.29 per kilogram to KSh 18,000 per kilogram.

The proposal is intended to maintain the real value of excise duty on these products by adjusting the specific rates to account for inflation and support consistency in the taxation of tobacco products.

The proposal wants to keep excise taxes on tobacco products at the right value even as prices go up because of inflation. It also aims to make sure tobacco products are taxed in a fair and consistent way.

Excise duty on spirits and undenatured alcohol

The Finance Bill 2026 proposes to amend the Excise Duty Act to clarify that excise duty on spirits of undenatured Extra Neutral Alcohol of alcoholic strength exceeding 90 percent applies to both imported and locally purchased products when supplied to licensed manufacturers of spirituous beverages.

The Bill also proposes to reduce the excise duty rate on such Extra Neutral Alcohol from KSh 500 per litre to KSh 80 per litre for licensed manufacturers of spirituous beverages. This is intended to lower the cost of production for licensed manufacturers and support formal production within the alcoholic beverages sector.

The current provision uses the term “purchased,” which has created uncertainty on whether the rate applies only to locally purchased products or also to imported products.

This proposal is in line with the provisions of the EAC community custom provisions, and also acts to deterr individuals from smuggling from neighbouring countries.

Taxation of sugar-sweetened beverages

The Finance Bill 2026 proposes to introduce excise duty on locally manufactured sugar confectionery at the same rate as imported products to promote fairness and eliminate discriminatory treatment.

Excise duty on sugar confectionery is currently imposed only on imported products as a measure to discourage consumption due to associated negative health effects. However, this differential treatment has triggered legal challenges on grounds of discrimination and inconsistency with international trade obligations, creating an uneven tax regime that undermines fairness, distorts competition, and exposes the policy to legal and compliance risks.

The essence for this excise duty is to encourage a healthy lifestyle, bearing in mind that Ministry of Health data shows increased cases of diabetes amongst the young, lifestyle diseases…etc.

From zero-rated to VAT exempted

The Finance Bill 2026 proposes to transfer the following goods and services from VAT zero rated status to VAT exempt status:

a) Inputs or raw materials locally purchased or imported for the manufacture of animal feeds.

b) Inputs or raw materials locally purchased or imported for the manufacture of pharmaceutical products.

c) Transportation of sugarcane from farms to milling factories.

d) Supply of imported or locally purchased mobile phones.

e) Supply of motorcycles of tariff heading – 8711.60.00.

f) Supply of electric bicycles.

g) Supply of solar and lithium-ion batteries.

h) Supply of electric buses of tariff heading 87.02.

i) Bioethanol vapour stoves, HS 7321.12.00.

The proposed amendments are intended to rationalize VAT zero rating in line with the National Tax Policy and the Medium-Term Revenue Strategy, which seek to limit zero rating mainly to exports.

The changes also seek to align the VAT treatment of inputs with that of the final products. For example, pharmaceutical products are VAT exempt, while inputs used in their manufacture are currently zero-rated. In the case of mobile phones, the change is linked to the proposed shift in the taxation framework under excise duty. The proposal, therefore, seeks to promote consistency in the VAT system, rationalize tax expenditures, and reduce pressure on VAT refunds.

VAT exemption on goods, services used in PPPs

The Finance Bill 2026 proposes to amend the First Schedule to the VAT Act to exempt from VAT goods and services imported or procured locally for direct and exclusive use in the infrastructure projects implemented under the Public-Private Partnerships (PPPs) framework.

The reasoning behind this is that less money spent on taxes means more money available to build the infrastructure Kenyans need, helping to create jobs, improve services, and support economic growth.

PPP projects are used to build important public infrastructure such as roads, hospitals, schools, water systems, and energy projects.

VAT on mitumba

The Finance Bill 2026 proposes to simplify the VAT treatment of Mitumba sector by providing that VAT is charged at the point of importation, while domestic sales of these goods will be exempt from further VAT.

This will in the long run reduce compliance burden for traders by ensuring that VAT is collected at a clear and verifiable point.

Bottomline is that this is good news for Mitumba traders and shoppers. VAT will only be paid at the point of entry into Kenya. Local mitumba traders will not have to charge VAT when selling the clothes in markets. This makes business easier for traders, reduces paperwork, and helps them keep more of their earnings as it removes double taxation.