JULY 2026 – KENYA
FINANCE ACT, 2026
It is important that employers note the following:
Tax changes introduced by the Finance Act, 2026
The Finance Act, 2026 was assented to by the President on 26 June 2026. While the Act introduces limited employment tax changes, employers should note that most payroll-related provisions take effect on 1 July 2026, with certain provisions deferred to 1 January 2027.
Effective 1 July 2026
The following employment tax changes take effect from 1 July 2026:
Tax exemption for qualifying employer gratuity contributions
- Employer gratuity contributions are exempt from income tax where:
- the gratuity relates to an employment contract (including renewals or extensions) of at least three years;
- the total employer contribution does not exceed 31% of the employee’s total emoluments earned over the contract period; and
- the employee is not entitled to a deduction under section 22A of the Income Tax Act.
- Employers offering gratuity arrangements should review their policies to determine whether they meet the revised exemption requirements.
Exemption for certain non-resident airline employees
- Employment income earned by qualifying non-resident employees of Kenya’s designated national carrier for services performed outside Kenya in international air transport is exempt from Kenyan income tax.
No changes to PAYE tax tables
- The Finance Act, 2026 does not amend the PAYE tax bands, personal income tax rates or personal reliefs. As a result, employers are not required to update PAYE tax tables.
Effective 1 January 2027
The following employment-related amendment has been deferred and will take effect on 1 January 2027:
Tax exemption for benefits arising due to death
- Benefits arising due to the death of an employee will become exempt from income tax from 1 January 2027, based on the commencement provisions of the Act.
Individual tax return deadlines
- Filing deadline shortened to 4 months after year-end.
- Employers should align employee tax reporting timelines.
Employer impact
The Finance Act, 2026 introduces limited payroll-related changes.
- Employers should review the tax treatment of qualifying gratuity contributions from 1 July 2026.
- No updates are required to PAYE tax tables or payroll calculations.
- Employers should also take note of deferred provisions, including the tax treatment of death benefits and revised tax return deadlines, effective from 1 January 2027.
To view the Finance Act, 2026, follow the link.
