The private sector has urged Parliament to amend contentious clauses in the Finance Bill 2026, warning that excessive taxation could weaken business competitiveness, suppress job creation and slow economic growth.
Speaking during a joint press briefing organized by the Kenya Private Sector Alliance (KEPSA) and the Kenya Bankers Association, business leaders said the proposed tax measures should promote industrialization and expansion of the tax base rather than overburden formal businesses and workers.
KEPSA Chairperson Dr. Jaswinder Bedi said the Finance Bill 2026 comes at a critical moment for Kenya’s fiscal stability and economic competitiveness.
“As private sector actors, we fully support the government’s Bottom-Up Economic Transformation Agenda (BETA).
However, structural economic stability demands an intentional balance between aggressive domestic revenue mobilization and the preservation of private sector competitiveness,” said Dr. Bedi.
He noted that the National Treasury targets to raise Sh3.38 trillion in ordinary revenue during the 2025/2026 financial year, even as the formal economy continues to face high production costs and shrinking competitiveness.
Citing data from the Kenya National Bureau of Statistics Economic Survey, Dr. Bedi said the formal sector currently accounts for only 16.2 per cent of total employment, representing about 3.5 million workers, while the informal sector carries 83.8 per cent of the labour force, equivalent to 18.1 million workers.
“True revenue growth is a by-product of an expanding economic base, not intensifying tax rates on a shrinking pool of formal taxpayers,” he said.
KEPSA outlined three key pillars in its submissions to the National Assembly Departmental Committee on Finance and National Planning: enhancing regional and global competitiveness, creating and protecting jobs, and increasing government revenue through predictable taxation and simplified compliance systems.
The alliance called for alignment of Kenya’s tax regime with the East African Community Common External Tariff framework to prevent capital flight and strengthen local supply chains against competition from countries such as Ethiopia and Rwanda.
On workers’ welfare, the private sector proposed reducing the maximum Pay As You Earn (PAYE) rate from 35 per cent to 30 per cent and increasing monthly personal relief to Sh3,000 to establish a tax-free threshold of Sh30,000.
Kenya Bankers Association (KBA) Chief Executive Officer Raimond Molenje said the proposed five per cent PAYE reduction would inject approximately Sh28.1 billion into the economy by increasing disposable income and stimulating consumption.
“This consumption-led growth will ultimately generate between Sh27.1 billion and Sh31.5 billion in tax revenue, completely offsetting the initial shortfall while creating thousands of jobs,” said Molenje.
He added that the proposal would also support loan uptake and business expansion, potentially generating about 36,000 new formal jobs in the first year.
Molenje clarified that the PAYE proposals would not only benefit salaried employees, but also individual taxpayers and consultants whose earnings are assessed under individual income tax brackets.
The private sector also opposed proposed amendments seeking to impose a 16 per cent Value Added Tax on digital payment processing and merchant acquiring services.
KEPSA warned that taxing digital financial services would increase transaction costs, undermine financial inclusion and drive traders back to informal cash transactions.
The alliance further rejected plans to expand withholding tax on card network interchange fees, arguing that the move would overturn previous court decisions and create uncertainty in the financial sector.
“Overturning judicial decisions creates legal uncertainty, erodes public confidence in the rule of law and risks discouraging investment in payment infrastructure,” said Dr. Bedi.
The organisation further raised concerns over proposed tax measures affecting manufacturing, aviation and the green economy.
KEPSA opposed the introduction of excise duty on unbleached Kraft paper, warning that the move would increase agricultural packaging costs by 42 per cent and reduce the competitiveness of fresh produce exports.
The alliance also rejected proposals to remove VAT exemptions on electric motorcycles, bicycles and lithium-ion batteries, saying the measures would undermine Kenya’s transition to green mobility and discourage environmentally focused investments.
On the aviation sector, KEPSA cautioned that removing VAT exemptions on aircraft and aircraft parts would expose operators to additional levies, including Import Declaration Fees and Railway Development Levy charges, making Kenya less competitive as a regional aviation hub.
Business leaders further criticized proposals under the Tax Procedures Act that would allow the Kenya Revenue Authority to freeze bank accounts and issue agency notices while tax disputes are still under appeal in court.
KEPSA said the changes would violate constitutional rights to fair administrative action and fair hearing by crippling businesses before judicial processes are concluded.
The alliance also proposed reforms to the iTax system to allow seamless automated offsetting of overpaid tax credits against liabilities such as PAYE, VAT and withholding tax without requiring manual approvals.
Dr. Wairimu Mbogo said the pharmaceutical sector had submitted proposals aimed at protecting affordable healthcare and strengthening local manufacturing.
She called for essential medicines and pharmaceutical raw materials to remain zero-rated in order to reduce production costs and improve access to medicines.
“We need to move towards a point where we are locally manufacturing for health equity,” said Dr. Mbogo.
She also opposed proposals that could expose sensitive patient information through electronic tax invoice systems, saying confidentiality in pharmaceutical care must be safeguarded.
Dr. Bedi said Parliament should ensure that the Finance Bill 2026 becomes a catalyst for industrialization and job creation rather than a barrier to business growth.
“By refining these clauses, removing non-claimable input burdens and maintaining statutory safe harbours, we can move our national fiscal policy away from a desperate regime of taxing for survival and embrace a progressive, predictable framework of taxing for growth,” he said.
By Anita Kariuki and Nyawira Githinji
