Millions of Kenyans who file nil tax returns each year could soon be required to submit them far earlier than they do now, under proposed changes unveiled by Treasury Cabinet Secretary John Mbadi.
Presenting the 2026-27 Budget Statement in Parliament on Thursday,treasury cabinet secretary Mbadi outlined a series of tax administration reforms designed to strengthen compliance and give the Kenya Revenue Authority (KRA) more time to verify returns before the start of a new financial year.
If approved, the changes would end the current system under which all individual taxpayers file their annual returns by 30 June, regardless of their source of income.
Instead, taxpayers who file nil returns would be required to submit them within one month after the end of the year of income. Salaried employees whose earnings are fully taxed through the Pay As You Earn (PAYE) system would have four months to file their returns.
The Treasury says the move is intended to address a long-standing challenge in tax administration.
“Currently, the deadline for filing tax returns is June 30, of every year for all categories of income, which leaves no room for verification and validation of filed returns before the commencement of another financial year,” Mbadi told lawmakers.
“To provide sufficient time for verification and validation of returns, I propose revisions to the timelines for filing individual income tax returns.”
The proposal would particularly affect the large number of young people, students, job seekers and informal workers who file nil returns each year to remain compliant with tax requirements.
The changes form part of a broader effort by the government to increase efficiency in revenue collection at a time when public finances remain under pressure.
Notably, Mr Mbadi sought to reassure Kenyans that the budget does not introduce new taxes or increase existing tax rates.
“I have deliberately chosen not to introduce new taxes or increase tax rates that would further overburden hardworking Kenyans and their families,” he said.
“Instead, the measures are focused on reforms that improve efficiency in tax collection, create fairness in the tax system and broaden the revenue base without burdening wananchi.”
Beyond individual tax filings, the Treasury is seeking to close what it describes as loopholes that allow some transactions involving Kenyan assets to avoid taxation when structured through foreign companies.
Under the proposed changes, gains arising from offshore transactions involving assets located in Kenya would become taxable, regardless of where the deal is executed or where the beneficial owners are based.
The government is also turning its attention to companies that hold on to profits for extended periods rather than distributing them to shareholders. Treasury officials argue that some firms have used retained earnings as a way to postpone dividend-related tax obligations.
“When companies make profits, those profits should find their way back to shareholders within a reasonable time,” Mbadi said.
To discourage prolonged retention of earnings, the Treasury is proposing a minimum deemed dividend distribution threshold of 60 per cent of undistributed income.
The budget also seeks to clarify tax treatment for software-related payments, interchange fees and merchant service charges, reflecting the growing role of digital commerce in the economy.
Meanwhile, gambling winnings could soon attract withholding tax under another proposal announced in the budget.
CS Mbadi argued that while betting, lotteries and prize competitions are legal economic activities, income earned from them should be treated like any other taxable income.
“Gambling activities have grown significantly in recent years, particularly through digital platforms,” he said. “While these are legitimate activities, winnings from gambling are income, and like any other income, they should be taxed.”
The proposals now move into the legislative process, where lawmakers will debate the measures before any changes take effect. For many taxpayers, however, the prospect of earlier filing deadlines is already likely to spark fresh attention to Kenya’s evolving tax landscape.
About the Author
