Kenya's Finance Bill 2026 Ends Tax Exemption for Kenya Airways Services and Expands Royalty, VAT Definitions

Nairobi -- Kenya's proposed Finance Bill 2026 amends Section 35 of the Income Tax Act by deleting Paragraph 1(lii), ending a withholding tax exemption for payments made by Kenya Airways to non-residents for specialized technical, maintenance, compliance, training, or digital systems support services.

AllAfrica reported that Paragraph 1(lii) of Section 35 grants this exemption where such services are unavailable in Kenya. The exemption also applies where the foreign provider is certified by an international regulatory, licensing, or standard-setting body.

This change will subject such payments to withholding tax, potentially raising costs for Kenya Airways' international partnerships while aligning with domestic tax equity. The Finance Bill 2026 broadens the definition of 'management or professional fee' to include interchange fees and merchant service fees from card-based transactions.

It redefines 'royalty' to cover software, whether proprietary or off-the-shelf.

The new royalty definition includes licence, development, training, maintenance, and support fees for software. AllAfrica reported that the royalty definition encompasses proprietary digital platforms. It includes payment-card systems, payment processing systems, switching systems, clearing systems, and settlement systems.

This applies regardless of whether payments are made regularly or per transaction. This section requires businesses to pay back input tax previously claimed on unsold stock once those supplies are no longer taxable.

These amendments broaden the tax base for sectors such as aviation, fintech, software, and commerce, as reported by AllAfrica. 'The proposal seeks to amend Section 35 of the Income Tax Act by deleting Paragraph 1(lii),' the bill states. The article detailing these proposals was published on May 4, 2026.

It was written by Kevin Rotich.