What the Finance Bill 2026 means for mitumba prices, smartphones and rent

The Finance Bill 2026 has proposed a series of tax changes that could affect the prices of second-hand clothes, smartphones, rental income and digital financial services, as the government moves to widen the tax base and improve revenue collection.

The proposals have sparked debate among Kenyans including former Law Society of Kenya President Faith Odhiambo, with critics warning of higher living costs and increased pressure on businesses and consumers, while the government says the measures are intended to simplify tax administration, improve fairness and seal loopholes in the system.

One of the most discussed proposals is the new presumptive tax framework on mitumba imports.

Under the proposal, second-hand clothes would continue attracting 16% VAT at the point of entry. The government would then assume a 5% profit margin from the sale of the goods and apply a one-off 30% income tax on that presumed profit.

Concerns raised around the proposal include the possibility of higher mitumba prices, reduced affordability for low-income households and pressure on traders operating with small profit margins.

In its explanation, the government says the framework is intended to replace what it describes as a fragmented tax structure with a single and more predictable process. Treasury argues that the model would reduce multiple taxation points, simplify compliance and improve transparency within the mitumba trade.

The government also says the proposal followed consultations with mitumba traders and is aimed at addressing under-declaration of taxable income among some importers.

The Bill further proposes a 25% excise duty on mobile phones.

Critics say the move could increase smartphone prices and potentially affect access to digital services, especially among young people and low-income users who rely on mobile devices for communication, online work and financial transactions.

According to the government, the proposal is part of efforts to broaden taxation within the digital economy. 

Officials say the approach would shift taxation toward actual device usage and participation in the digital sector rather than relying mainly on import declarations.

Another proposed change is the increase in Residential Rental Income Tax from 7.5% to 10%.

Some stakeholders have expressed concern that higher taxes on rental income could contribute to non-compliance or eventually influence rental prices.

The government says the adjustment will be supported by enforcement reforms, including withholding mechanisms and simplified compliance systems for non-resident property owners. 

According to Treasury, the goal is to improve tax collection and harmonise the treatment of different categories of landlords.

The Finance Bill 2026 also seeks to clarify VAT treatment on digital financial services and fintech platforms.

Concerns have been raised that the changes could increase the cost of digital transactions for consumers and businesses.

However, the government says the proposal is mainly intended to address inconsistencies in the taxation of fintech companies compared to traditional financial institutions and to create greater clarity in the sector.

Other measures contained in the Bill include withholding tax on interchange and merchant fees within the banking system and a deemed dividend tax targeting companies that retain large amounts of undistributed profits.

The government says the proposals are aimed at improving tax compliance, capturing previously under-taxed revenue streams and reducing opportunities for tax avoidance.

The Bill comes amid continued public debate over Kenya’s tax policies and concerns about the cost of living, with many salaried workers arguing that PAYE earners remain heavily taxed compared to other sectors of the economy.

According to the government, the broader direction of the reforms is intended to spread the tax burden across more sectors, including informal trade, digital services and corporate structures that it says have historically been under-taxed.