NAIROBI, Kenya, May 4 – Kenya’s proposed Finance Bill 2026 could sharply increase operating costs for Kenya Airways (KQ) while significantly expanding the country’s tax reach into digital payments, software, and card transaction ecosystems.
At the centre of the proposed changes is an amendment to Section 35 of the Income Tax Act that would delete Paragraph 1(lii), ending a withholding tax exemption previously granted to the national carrier on payments to non-resident service providers offering specialised technical, maintenance, compliance, training, and digital systems support.
“The proposal seeks to amend Section 35 of the Income Tax Act by deleting Paragraph 1(lii),” the bill states.
“This paragraph grants withholding tax exemption on payments made by the national carrier to a non-resident for specialised technical, maintenance, compliance, training, or digital systems support services.”
The exemption currently applies where such services are unavailable in Kenya or where the foreign provider is certified by an international regulatory, licensing, or standard-setting body under conditions that are common in the aviation industry due to strict global safety and operational standards.
Its removal could expose Kenya Airways to additional tax costs on essential overseas technical partnerships, including aircraft maintenance systems, compliance frameworks, aviation software, and internationally accredited training.
Beyond aviation, the Finance Bill also broadens the definition of “management or professional fee” to include interchange fees and merchant service fees from card-based transactions, effectively bringing more digital payment-related charges into the tax bracket.
The proposed amendments further redefine “royalty” to cover software, whether proprietary or off-the-shelf, including licence, development, training, maintenance, and support fees.
The new definition of “royalty” also includes proprietary digital platforms, payment-card systems, payment processing systems, switching systems, clearing systems, and settlement systems, regardless of whether the payments are made regularly or per transaction.
This could increase tax obligations for payment processors, software firms, banks, and digital commerce operators whose infrastructure underpins Kenya’s growing cashless economy.
A new Section 17A in the VAT Act would make businesses pay back the input tax they previously claimed on unsold stock once those supplies are no longer taxable, which could lead to immediate tax costs.
Together, the proposals signal a far-reaching tax restructuring agenda aimed at expanding government revenue collection across strategic sectors, including aviation, fintech, software, and commerce.
