Understanding the Finance Bill 2026 with FCPA Edna Gitachu | Business redefined

Hinzugefügt: 2026-05-27

[00:00:01][music] [music] [music] >> Hey folks, welcome to yet another episode of Business We Define, your weekly most comprehensive look at the world of business, finance, and economics. We are right in the season of submission of comments on Finance Bill of 2026.

[00:00:31]And of course, this is a build-up to the budget which should be tabled before the August house in mid-June. And we're privileged to have the tax partner at PWC, that is Madam Edna Gitachu, FCPA, I should clarify. Edna Gitachu, karibu sana. Thank you very much, Julian's, for having me.

[00:00:47]>> We Define, Edna. Thank you. Let's take a broad view of Finance Bill 26. In the recent past, what we have seen around tax laws amendments has been the skew towards administrative measures.

[00:01:00]When you read the tone, the content of Finance Bill 26, are we continuing with that trajectory? Are we deviating from it? So, Julian's, Finance Bill 2026 is still focusing on the administrative trajectory. Yeah.

[00:01:15]And I'll give a few examples, which when taken together actually signal a significant shift in how taxes will be administered in the country.

[00:01:24]So, the first example is the Finance Bill 2026 proposes to give the revenue authority power to originate assessments.

[00:01:33]So, currently what happens is that taxpayers originate their own assessments.

[00:01:39]Then the revenue authority will audit the assessments.

[00:01:42]If there any challenges, then the revenue authority and the taxpayer will engage into in a dispute and resolve the matter.

[00:01:49]But now we are seeing that the revenue authority will be prepopulating returns based on information it has.

[00:01:56]Part of this information will be from the electronic invoicing system, it will also be from the withholding tax system, custom system, or even information from third party.

[00:02:07]So, one of the challenges with this is that where the taxpayer is not allowed to make adjustments to the pre-populated return, this might lead to a lot of disputes.

[00:02:18]And secondly, where the information that the taxpayer has does not reconcile to the information with the revenue authority, then might lead to higher effective tax rates. So, in principle, the whole idea is to make compliance easier. But the challenge then comes in when it comes to reconciling the data set that the revenue authority has with the data set that the taxpayer has.

[00:02:44]The other thing that remains constant, which I think should be reviewed with this change of the regime, is that the burden of proof still remains with the taxpayer.

[00:02:53]So, currently as a taxpayer, when I file my tax return, I hold the financial information. So, the revenue authority would come in, audit, and challenge how I have filed my return and declared the taxes. It is fair because I am the one with the information for me to disprove what the revenue authority has said. But when we come to the commissioner originating assessments, the data sets are not with the taxpayer.

[00:03:19]The data sets are actually with the revenue authority. So, then the question then is should the taxpayer then be expected to still have the burden of proof, or should this be something that should be looked at?

[00:03:32]Then Julian, the third one is around the compliance timelines.

[00:03:37]So, currently, taxpayers are required to file their returns 6 months after year end.

[00:03:43]What this means for companies that have December year ends or individuals is that we currently file by 30th of June every year.

[00:03:53]But this will be shortened by 2 months to 30th of April every year.

[00:03:58]And in my view, this is genuinely tight.

[00:04:01]And especially for the regulated entities. A good example is a financial sector that are that is required to report by 31st of March.

[00:04:11]Now, remember, Julians, we have uh some form of pre-populated returns because the current data sets are being drawn from electronic invoicing. So, taxpayers also need to reconcile their tax positions besides completion of the audits. So, that 1 month uh I mean, that 2 months that has been hived off should have been the time that would be used to then reconcile the positions. I know there has been an argument that the balance of tax is due on 30th of April, but there's a significant shift in the market because we need to reconcile this data set that the taxpayer has with the data set that the revenue authority has.

[00:04:48]The Tax Laws Amendment Act 2024 increased the timelines for taxpayers to be able to challenge decisions by the revenue authority.

[00:04:58]The Finance Bill 2025 attempted to reduce these timelines by excluding weekends, so that time will be counted continuously. Now, we are seeing >> That was rejected by Parliament. Now, we have seen uh we've seen this coming in the second time. Which then also undermines predictability.

[00:05:16]Because if we have recycling of proposals, Julians, taxpayers don't know what to expect in the next finance bill cycle. So, I'm hoping that these are some of the things that Parliament is going to be looking at during the public participation phase.

[00:05:29]Edna, one of the biggest highlights that many have talked about is the question of the amnesty, which is being at least Finance Bill 26 proposes to revive it until the close of 2026.

[00:05:42]Naysayers or contrarian thinkers have argued that too many amnesties negate the whole point of voluntary compliance because if I'm a taxpayer who knows there'll be another amnesty anyway, why would I be compliant?

[00:05:59]What are your thoughts on that, Ed?

[00:06:01]So, Julian, there are two ways of looking at this.

[00:06:04]Is there a risk when it comes to tax amnesties? Yes, there is a risk. But, can it be managed? Yes, it can also be be managed. And let me give you perspective or context in terms of what has happened in the last decade.

[00:06:15]So, in the last decade, we've had about four or so amnesties.

[00:06:19]The last amnesty covered liabilities up to 31st of December, 2023.

[00:06:25]Finance Bill 2026 now proposes to extend this period to 31st of December, 2025.

[00:06:32]On condition that all the unpaid tax liabilities are paid by 31st of December, 2026.

[00:06:39]So, let me start by saying, Julian, I think this window is too short for payment.

[00:06:43]>> [laughter] >> The payment should extend to 31st to 30th of June. Next year. 2027 to give taxpayers a full fiscal year to make sure that they have paid their liabilities. But then, there are various reasons why governments use amnesties.

[00:06:57]And the first one is that they unlock significant revenue. Yeah. The most recent amnesties we've had have unlocked significant revenue for the government.

[00:07:05]>> We're now targeting 30 billion. We're now targeting 30 billion. I think the previous one was around 50 billion.

[00:07:10]>> 50 B, yeah. Yeah, we were able to mobilize about 50 billion.

[00:07:14]The second reason is that it's a way of expanding the tax base.

[00:07:19]Think of it this way. If you have taxpayers that fell off the tax system, it is an opportunity to bring them back to the tax system. And then, from there, you monitor their compliance.

[00:07:31]And thirdly, it's cost-effective.

[00:07:34]If you look at it from a dispute resolution perspective, if disputes are resolved during this window, and that is one of the reasons why I'm pushing for it to be extended to 30th of June 2027 is there will be significant disputes that will be resolved because taxpayers know at the back of their minds I will pay the principal tax, but I'll get an automatic waiver of the penalties and interest.

[00:07:57]So, to your earlier point, yes, is that school of thought that if you have too many amnesties, then there are certain taxpayers who may not want to comply.

[00:08:08]But the trick is how do you structure these amnesties? I don't think it's just about the frequency, but it's more What First of all, what is the objective that you want to achieve in the tax system?

[00:08:18]And two, how do you structure the frequent the tax amnesties?

[00:08:22]And Julian's idea say I think this would also have been a very good opportunity for government to review the legacy balances.

[00:08:28]>> [laughter] >> We have predecessor systems to iTax.

[00:08:31]Either the manual filing or the integrated tax management system where information now is being loaded onto iTax. Yeah. Taxpayers have a lot of liabilities. Remember, taxpayers only have 5 years to keep their records.

[00:08:45]>> Yes. So, they're being asked for records beyond the 5-year period.

[00:08:49]The Tax Appeals Tribunal has pronounced itself that the revenue authority cannot demand these tax.

[00:08:55]So, I think this would be a very good opportunity for the government to also consider abandoning collection of these tax that is more than 5 years relating to legacy balances. I see. Interesting perspective there. And another one which has been a live wire in terms of public debate has been the proposal around the Tax Procedures Act Section 42:14E on the subject of appeals. And when we were summoned by the Treasury CS on this subject, the Treasury CS argues, "Here's a problem.

[00:09:24]The law provides that as long as you have filed a notice of appeal, just an appeal is sufficient. And the Treasury argues, "We have revenue to the tune of about 600 billion locked up in disputes in court.

[00:09:38]Why can't we have a system whereby there is a predicate of an injunction of some sort before that measure of barring agency notices is affected? Is that a fair argument?

[00:09:49]So, Julian, let me just take you back to why we have this safeguard in the Tax Procedures Act.

[00:09:55]The reason why we have it is to create fairness when it comes to dispute resolution. So, currently as we speak, the revenue authority cannot get access to the amounts that are disputed until the dispute is so sorted out.

[00:10:11]This is not the first time we have seen this proposal. Yeah.

[00:10:14]The first time was through the Finance Bill 2022.

[00:10:18]Which proposed that taxpayers would pay 50% of the tax in dispute.

[00:10:23]>> Yeah.

[00:10:23]This was rejected by Parliament.

[00:10:26]The second time was Finance Bill 2023.

[00:10:30]The rate was reduced from 50% to 20%.

[00:10:34]>> Again, this was rejected by Parliament.

[00:10:36]Then 2024, 2025, and now Finance Bill 2026 have taken a different design.

[00:10:43]Yeah. Where KRA is now being empowered to actually freeze taxpayers' accounts to be able to recover 100% of the amount in dispute. So, first of all, from a predictability perspective, this does not send the right signals. Yeah.

[00:10:58]Because you keep having it rejected by Parliament for good reasons. And then the following year you bring it in in the hope that it is going to pass.

[00:11:06]Why did Parliament reject this proposal?

[00:11:09]The first one is a rush the the issue of access to justice. Yeah. If I have to pay the tax in dispute, this is a significant barrier to access to justice.

[00:11:19]>> Yeah. And if you look at the Constitution, it's very clear that the state shall ensure this access to justice. Yeah. And where there's a fee to be paid, it has to be reasonable.

[00:11:29]Julian, 100% is not reasonable in my view.

[00:11:33]And this then leaves the taxpayers with the option you were talking about, just rushing to court to get the stay orders.

[00:11:40]And it makes it very difficult very expensive for you to resolve a dispute.

[00:11:45]The other concern I have with this, what happens if a taxpayer wins? Yeah.

[00:11:50]How quickly can the taxpayer get the refund?

[00:11:53]We know about refunds in this market.

[00:11:55]>> Currently we have challenges with the refunds. And then related to that, this taxpayer would probably have invested the amount that was collected by the revenue authority in their business to either generate higher tax liability I mean more business for them to pay higher tax liabilities or would have gotten interest.

[00:12:12]Will they be compensated? Yeah.

[00:12:14]For their time value of money?

[00:12:17]I doubt. So this is a genuine concern.

[00:12:20]And Julian's, when you say you have a backlog, the solution is not shutting the courthouse doors to taxpayers.

[00:12:28]The solution is actually looking at one, the quality of the audits, and number two, fast-tracking dispute resolution. I see. Many of us are asking ourselves around Finance Bill 26 within the context of the MTRS.

[00:12:43]The MTRS was designed to be a blueprint of how we would see our revenue measures evolving between FY 24/25 and 26/27. We are now entering the sunset year.

[00:12:55]One, what's your view around how we have fared as a country in terms of there's there's an implementation metrics?

[00:13:01]Are we online? Are we on course? Have we gone off course?

[00:13:05]Two, how does Finance Bill 26 sit within that and what would you think is the way forward beyond that?

[00:13:11]So Julian's, before we score the medium-term revenue strategy, it's important for us to remind ourselves what it was meant to be. Yeah.

[00:13:19]So the first thing is that this is a three-year plan.

[00:13:22]And this three-year plan was supposed to run from 1st of July 2024 all the way to 30th of June 2027.

[00:13:31]It was supposed to give foresight of the tax measures that were to be implemented by various finance bills. And as you've correctly mentioned, it has an implementation matrix.

[00:13:42]It doesn't sit on its own. It sits alongside the national tax policy.

[00:13:48]And if you look at both the national tax policy and the medium-term revenue strategy, they were both supposed to entrench predictability in the tax system.

[00:13:59]Some of the goals, major goals of the medium-term revenue strategy was one, to raise revenue sustainably, and there was a headline target to increase the revenue tax revenue collected in the economy from 14.3% to 20%. Of GDP, yeah.

[00:14:14]Of GDP. This is what we refer to as a tax to GDP ratio.

[00:14:18]The second one was predictability because taxpayers would have access to the measures that the government would wants to introduce.

[00:14:26]So, on the first one, we have not gotten there in terms of the tax to GDP ratio.

[00:14:31]We are yet to get there.

[00:14:33]What is this that has been implemented to date?

[00:14:36]So, one of the things that a medium-term revenue strategy envisaged to implement is a restructuring of the taxation of pension regimes.

[00:14:45]So, currently, any contribution to the pension scheme up to 30,000 per month is exempt from tax. Yeah.

[00:14:53]Any investment income is also exempt from tax. At the point of withdrawal, upon attainment of retirement age, this should also be exempt from tax. So, this then increases the disposable income of the pensioners and also rewards long-term saving.

[00:15:09]If you look at modernization of tax processes, we have seen this, and a classic example would be uh implementation of the electronic tax invoice management system. Those contained in the medium-term revenue strategy, there are challenges with how this But if you read the medium-term revenue strategy, the goal was to make sure that if you do not have an electronic invoice, then you'd not claim an income tax deduction, or you'd not be entitled to a VAT input deduction. So that has already been implemented.

[00:15:42]But let's look at what is yet to be implemented. So the first one is a change around the rates.

[00:15:48]So the medium-term revenue strategy indicated that the corporate income tax rate would be reduced from the current 30% eventually to 25%.

[00:15:58]>> Yeah. So before we get to the 25% or the 28% rate that was mentioned >> It was staggered. So we have not seen movement around that.

[00:16:06]VAT rates by 30th of June 2025, the rate should have come down by one percentage point from 16% to 15%.

[00:16:15]Then eventually by 30th June 2027 to 14%.

[00:16:19]>> Yes. Still we've not seen movement there.

[00:16:22]Think about the VAT threshold.

[00:16:24]>> Yes. This was to be increased from 5 million To 8 million. We've not seen movement around that.

[00:16:31]The other one is around pay as you earn bands, which determine the tax that is supposed to be paid or collected from our salaries.

[00:16:39]We were expecting a revision of these bands to give reprieve to employees.

[00:16:45]>> This again is yet to be implemented. And there's one sticky issue around the refunds.

[00:16:51]So the medium-term revenue strategy identified refunds as one of the challenges in the tax system. And the idea was for taxpayers to be able to offset their refunds against liabilities. But this again has not been fully implemented. Just last year, taxpayers were made aware that if you have an agency tax, then you cannot be able to offset your tax overpayment against the agency tax.

[00:17:14]>> Yeah. So looking at these and the general thread of predictability, I think there are opportunities for us to do things slightly better. On predictability, the national tax policy made it very clear that once a proposal would be introduced, it would take about 5 years before it is reduced unless a significant public outcry.

[00:17:35]But during this implementation phase of the medium-term revenue strategy, we have seen proposals introduced by one finance finance act and taken away Yes.

[00:17:44]by the next finance act.

[00:17:45]>> down the line. One year down the line.

[00:17:47]>> Yeah. And if you are to look at think about 2024, December 2024 when we had the tax laws amendment act, it was actually 6 months Yes. down the line eh, that some of the measures were being withdrawn. The challenge we have with this in the tax environment, Julians, is that investors are looking at predictability to be able to unlock investment into the country. Yeah. And I think we should be able to look at these as a strategy of revenue collection.

[00:18:12]If we have a predictable tax environment, as an investor, I'll be able to release capital into the market.

[00:18:19]I'll be able to make hiring decisions, expansion decisions, investing in technology, etc., knowing that the tax rules will remain constant. Yes. The other thing that we have seen through the finance bill 2026 is introduction of legislation that overrides court decisions. So again, this does not give the sense of predictability.

[00:18:40]>> about four actually. Yeah. So this does not bring the sense of predictability.

[00:18:46]Edna, as we wrap up our conversation, many of us were in huge anticipation.

[00:18:52]And you've touched on this around PAYE.

[00:18:53]We're told we wouldn't even wait for finance bill.

[00:18:56]Income tax amendment. When it came, we didn't see it. We were told the the income tax amendment is too close to the finance bill, we decided to wait for finance bill.

[00:19:04]Finance bill has come. We haven't seen it. Well, Treasury is on record saying it will still be there. We haven't seen it yet.

[00:19:10]But what would be your thoughts around the pay bands the Of course, the Treasury is saying we are in a tight fiscal space. We don't have much wiggle room.

[00:19:19]What are your thoughts there?

[00:19:20]Yeah, so just looking at the pay as you earn bands, I think there's room for us to do something more around that. The question is, what is the timing? Is it going to be done through the Finance Act 2026?

[00:19:32]Or is it going to be done later based on the argument that Treasury has that we are in a very tight fiscal space? Yeah.

[00:19:39]So if you look at the pay as you earn bands, you get to the 30% tax rate very quickly. Yeah.

[00:19:45]The tax-free threshold is 24,000.

[00:19:49]30% is about 32,000. So the difference is about 8,000. So clearly there's room for us to expand the tax bands. But looking at the arguments that the government has put across, and also not being cognizant of the geopolitical conflict that we can see from the Middle East, >> Yes. genuinely I think the government is in a tight fiscal space. So the government would actually have to balance this.

[00:20:12]So it's a question of do we expand, or do we increase the disposable incomes of salaried people, Yes.

[00:20:19]>> so that we can stimulate economic activity, and this will eventually generate more revenue to the government?

[00:20:26]Or is it a question of do we wait to see how the economic shock is absorbed in the market before then we can introduce any measure? I think it's a question of how do we balance this. Yes. It's not an extreme of do should we have it or not.

[00:20:40]Yeah. Janette. And as we close, we've had so much talk about Finance Bill.

[00:20:43]We've had sentiments around the various provisions. What would be your parting shot? And your parting shot is basically, I mean, as Parliament reconvenes to begin now looking at submissions and generate their report, it it to your mind, what is really the imperative of Finance Bill 2026?

[00:21:01]I think the first thing that I would be urging the members of Parliament is to consider the subject of predictability very seriously.

[00:21:08]As I said, if we create a predictable environment, this is going to help us mobilize more tax in the economy.

[00:21:17]Think about it.

[00:21:18]If as an investor you have a predictable environment, you are able to continue with your investment activities.

[00:21:25]And you are sure that the rules remain consistent over time. But the challenge we've had, as we had earlier said, is that we have certain proposals introduced by one finance minister and withdrawn by the next. So, I think those would be the first candidates that should drop off just to create that sense that we have a predictable environment.

[00:21:45]And the other thing, and one that I would really want to talk about, is a pay-to-play provision.

[00:21:50]We say this is a fifth time it has been introduced. Yeah. I would urge the members of parliament to use us to apply the same wisdom that they have in the past to reject these proposals. Yeah.

[00:22:00]And I hope that it is not going to be contained in the Finance Bill 2027.

[00:22:05]To give investors a sense that we have a predictable tax environment.

[00:22:09]>> Yeah. Sure there is. We have been having a conversation on Finance Bill 2026 with the tax partner at PwC, that is FCPA Edna Gitachu, covering a number of issues, but more specifically around the predictability of the landscape, the recurrence of the proposal around pay-to-play, and that is on the Section 42 of the Tax Procedures Act, and finally around pay proposals and disposable incomes, and why in the present environment we of course need to calibrate between the tight fiscal space, which we all appreciate we are facing, but the need to catalyze economic activity by economic agents, that is businesses and households. We shall keep on highlighting the evolution of the tax policy landscape as and when it evolves. Keep it business redefined.

[00:23:02]>> [music]