KRA Tax Dispute Clouds Finance Act 2026 Reforms as Digital Lenders Face Great Uncertainty.

Kenya’s digital lenders have welcomed several changes in the Finance Act 2026, but an unresolved tax dispute with the Kenya Revenue Authority continues to make long-term planning difficult. The concern centres on an active High Court appeal involving historical tax claims dating back to December 2022. The next hearing is expected in September, leaving lenders uncertain about possible liabilities as they prepare budgets, raise capital and consider expansion.

The Digital Financial Services Association of Kenya, which represents 35 licensed digital credit providers, says the dispute shows why favourable tax measures alone are not enough. Investors also need confidence that tax rules will be interpreted consistently and that old claims will not create unexpected costs after capital has been committed.

The industry secured six changes during consideration of the Finance Bill 2026. Parliament dropped a proposed 60% tax on retained earnings, allowing lenders to keep profits within their businesses and use the money to develop technology, expand loan books and reach underserved customers. Uncertainty nevertheless remains over how KRA may examine retained profits during future audits. Lenders are strengthening their records to show that the money is being reinvested in operations rather than retained mainly to avoid tax.

Reforms reduce pressure on lenders and borrowers
The Finance Act 2026 improved the treatment of bad debts by allowing qualifying lenders clearer deductions when loans cannot be recovered. This matters because defaults are part of the cost of extending unsecured credit. Better deductibility can preserve capital that would otherwise be lost to unpaid loans and tax charges.

It also exempted the realisation of collateral from VAT by treating it as a financial service, reducing the tax costs lenders may face when recovering money from secured loans after a default. Lawmakers further rejected a proposal that would have allowed KRA to enforce collection through agency notices while the disputed tax was still under appeal. Such notices can require banks and other third parties to transfer a taxpayer’s money before the dispute is resolved.

Consumers gained from the rejection of proposals to raise smartphone excise duty from 10% to 25% and introduce an activation based tax. Zero rating for locally assembled phones was retained, helping to keep devices used for borrowing, saving and payments affordable while supporting local manufacturing.

The need for clearer tax rules is becoming more important as Kenya’s digital lending market expands. The country had 252 licensed digital credit providers as of July 14, 2026, up from 227 in April. By May, licensed lenders had issued 8.37 million loans worth KSh150.56 billion. Resolving the outstanding dispute and clarifying how tax rules will be applied would give these businesses greater confidence to invest, expand their lending capacity and serve more households and small businesses.