KRA Moves to Tax Retained Company Profits Under New Finance Bill Proposal

The Kenya Revenue Authority (KRA) is set to get new powers to tax money that companies keep instead of paying out to shareholders.
What KRA intends to do
When a company makes a profit, it can either share it with shareholders (as dividends) or keep it (as retained earnings) to fund growth, acquisitions, or as a buffer against tough times.
Under the proposed Finance Bill amendments, KRA can treat at least 60% of any unexplained retained earnings as if it were a dividend, and tax it. Local shareholders pay 10% withholding tax on dividends; foreigners pay 15%.

What this means
The decision on whether to pay a dividend has always belonged to the board. This proposal quietly shifts that decision toward KRA. If a company keeps its profits, it must now convince the taxman that it had a good reason, not its shareholders.
That changes the game in two ways. First, retaining earnings stops being a free choice and becomes a tax risk, so some companies will pay dividends they cannot afford, just to stay safe.
Second, those same companies will then borrow to fund the growth they would have funded from retained profits, raising their cost of capital.

The irony is sharp: a rule designed to stop tax avoidance may end up punishing the most disciplined companies, those that reinvest patiently instead of paying out.