(NAIROBI, KENYA) – A wide coalition of business leaders, professional associations and political figures is urging lawmakers to adopt a lighter tax framework as Kenya faces a Sh4.82 trillion (approximately $37.08 billion) budget financing gap, mounting public debt and fresh anxiety over public unrest linked to disputed revenue legislation.
The pressure is building ahead of parliamentary discussions on the Finance Bill 2026. Lawmakers are expected to present the Budget and Finance Committee report in the National Assembly on Tuesday. In its current form, the Bill aims to collect an extra Sh120 billion (approximately $923 million) in revenue to cover part of the fiscal shortfall and fund the 2026/27 national budget.
But strong public resistance, similar to the backlash that sank the Finance Bill 2024, is now forcing legislators to consider removing several controversial clauses. Various groups warn that approving the Bill without major changes could cause economic disruption and social unrest like the deadly June 2024 protests. During those demonstrations, crowds broke into Parliament grounds shortly after the earlier finance law was passed.
At the heart of the matter is a difficult balancing act. The government needs to raise enough money without putting more strain on households already dealing with high living costs, or weakening business confidence during a period of global economic uncertainty. Treasury officials, however, insist there is very little room to cut public spending. This leaves Parliament with two main choices: approve the new revenue measures or borrow more.
Appearing before the National Assembly’s Budget and Appropriations Committee, Treasury Cabinet Secretary John Mbadi rejected calls for significant spending cuts, warning that such a move would affect public sector pay and core government functions. “If you look at this budget, there is nothing to cut. Otherwise, I will be cutting salaries of government employees,” Mbadi told the committee, which is chaired by Alego Usonga MP Samuel Atandi. He added that the government had already counted on additional revenue from the Finance Bill 2026 and planned reforms at the Kenya Revenue Authority to meet its targets.
Kiharu MP Ndindi Nyoro had put forward a proposal for a thorough review of expenditure. He argued that global economic shocks, including rising oil prices tied to geopolitical tensions in the Middle East, called for spending restraint rather than higher taxes. Mr Nyoro’s stance mirrors a growing concern among some MPs that Kenya’s tax load has hit a sensitive point both politically and economically.
For the 2026/27 financial year, the National Treasury is aiming for total revenue of Sh3.63 trillion (approximately $27.92 billion), which equals about 17.4 per cent of gross domestic product. This compares with roughly Sh3.40 trillion (approximately $26.15 billion), or 18.2 per cent of GDP, in the current fiscal year. Out of this, Sh2.99 trillion (approximately $23 billion) is expected from ordinary revenue, representing 14.3 per cent of GDP, while Sh644 billion (approximately $4.95 billion) is projected from Appropriation in Aid, a 4.8 per cent increase from the current year’s approved figures. The Treasury has also lowered its expectations, noting a likely shortfall of Sh147.4 billion (approximately $1.13 billion) in the current financial year.
Against this background, the Finance Bill 2026 has become the central arena for competing economic and political interests. Accountants, lawyers, bankers and manufacturers have together called for a compromise Bill that avoids steep increases in the cost of living or doing business. One of the main proposals is to reduce the marginal Pay-As-You-Earn tax rate to between 25 and 30 per cent, while also widening income tax bands to ease the burden on salaried workers.
The Kenya Bankers Association has pointed out that Kenya’s PAYE structure is too compressed, pushing workers into higher tax brackets much faster than in comparable economies. A senior official at the association said lower PAYE rates could boost economic activity by increasing disposable income, savings and investment. “Kenya’s PAYE tax bands are narrow and steep, with high marginal rates applying at much lower incomes than in peer countries,” the association stated in its submission to Parliament.
Other groups note that workers are already facing multiple deductions that have considerably reduced take home pay. These include contributions to the Social Health Insurance Fund, the housing levy and bigger pension contributions under the revised National Social Security Fund framework. The combined effect, they argue, has been a steady fall in real wages. Currently, employees contribute 2.75 percent of gross pay to the health fund, 1.5 per cent to the housing levy, which is matched by employers, and face higher pension deductions introduced in recent reforms.
A simulation presented by banking sector stakeholders suggests that cutting PAYE by 5 percent could put more than Sh28 billion (approximately $215 million) into the economy each year, lift GDP output by up to Sh42 billion (approximately $323 million) and create tens of thousands of jobs through stronger consumption and lending.
Tax experts from professional accounting bodies have supported the idea, saying a more progressive PAYE structure would match government pledges under its medium term revenue strategy. They argue that widening tax bands and lowering marginal rates would improve fairness while encouraging compliance.
One expert noted in a submission to the Finance Committee that with higher deductions for NSSF, housing levy and health contributions over the last two years, a more progressive tax rate would help raise disposable income among individuals. The reasoning is that higher disposable income would lead to stronger consumer demand, better savings and more investment activity, eventually widening the tax base rather than shrinking it.
Kenya is also being measured against its regional peers. In countries such as Ghana and South Africa, income tax systems have broader bands and more gradual rates, giving higher earners more room before they hit top marginal rates. In Ghana, for example, tax bands go from zero to 35per cent, with higher thresholds applying at much higher income levels than in Kenya.
Beyond income tax, the Finance Bill 2026 has stirred sharp disagreement over planned changes to value added tax treatment of essential goods and services. Various groups are opposing plans to move several goods from zero rated to VAT exempt status, warning that the change would push up production costs and ultimately consumer prices. Under Kenya’s tax system, zero rating lets businesses claim input tax credits, effectively lowering production costs. Exempt status, by contrast, prevents recovery of input VAT, making goods more expensive along the supply chain even if no VAT is charged at the final sale point. Professional bodies argue that shifting essential commodities to exempt status would have unintended inflationary effects.
The Law Society of Kenya has cautioned that the changes would raise the cost of essential goods and services, with the load eventually passed on to consumers through higher retail prices. One of the most contested proposals is a clause that would move certain agricultural and industrial inputs, including sugarcane transportation services, animal feeds and pharmaceutical inputs, from zero rated to exempt status. Manufacturers and agricultural groups warn this would increase production costs across several value chains. The Kenya Association of Manufacturers has said that removing zero rating on animal feed inputs would significantly raise the cost of livestock production, hurting food security efforts and pushing up prices of meat, milk and poultry products.
The Bill also proposes to reclassify electric mobility products and renewable energy equipment from zero rated to exempt status, a step that stakeholders say could slow investment in Kenya’s young green economy. Electric buses, electric bicycles, solar panels and lithium ion batteries are among the items expected to become more expensive. Tax experts argue these sectors are still in early development and need incentives to achieve scale and competitiveness. Removing input VAT recovery, they warn, would raise production costs and discourage investment just as Kenya is trying to speed up its shift to clean energy and low carbon transport.
Digital financial services are also under review. The Bill proposes introducing VAT on payment processing, settlement and digital gateway services provided by financial technology platforms. Industry players warn this could raise the cost of digital transactions and create uneven competition between traditional financial institutions and emerging digital service providers. They say increased costs would likely be transferred to consumers, possibly slowing the growth of Kenya’s rapidly expanding digital payments ecosystem.
Despite the opposition, the Treasury insists that raising more revenue is necessary if Kenya is to meet its spending obligations without a sharp rise in borrowing. Officials also argue that the government is already hemmed in by wage bills, debt servicing commitments and development promises, leaving little room for deep spending cuts.
Parliament now sits at the centre of conflicting pressures. It must try to satisfy taxpayers and businesses while also making sure the government can fund essential services. Lawmakers are expected to consider changes to the Finance Bill 2026 in the coming days, with the political and economic stakes rising amid fears that poorly judged tax measures could spark fresh public unrest.