On Thursday, 11 June 2026, the National Treasury Cabinet Secretary tabled the Kenya Budget Statement for the 2026/2027 financial year before Parliament. At KSh 4.42 trillion, this is the largest budget in Kenya's history — and it carries significant implications for businesses, investors, and ordinary taxpayers alike.
For SMEs and corporates, understanding what changed — and what stayed the same — is the first step toward compliant and profitable operations in the new financial year. Here is Avatechtax's breakdown of the budget measures that matter most to your business.
Total Budget and Fiscal Framework
The 2026/27 budget is anchored on a fiscal deficit target of 4.3% of GDP, down from 4.9% in the previous year. Total revenue is projected at KSh 3.28 trillion, with KSh 2.92 trillion coming from ordinary revenue and KSh 362 billion from ministerial appropriations-in-aid.
Domestic borrowing will finance KSh 725 billion of the deficit, while external borrowing covers KSh 415 billion. The government has committed to reducing the stock of pending bills and clearing verified arrears to suppliers within 90 days — a welcome relief for contractors and service providers who have struggled with late payments.
Key Tax Changes Affecting Businesses
1. Corporate Income Tax Relief for Manufacturing
To stimulate local production and reduce import dependency, the budget introduces a reduced corporate income tax rate of 25% (down from 30%) for new manufacturing enterprises in the agro-processing, pharmaceutical, and textile sectors. The incentive applies for the first five years of operation and is conditional on 60% local raw-material content.
2. VAT Adjustments
The standard VAT rate remains at 16%, but the list of zero-rated supplies has been expanded to include veterinary vaccines, animal feed additives, and selected renewable-energy equipment. Businesses in agriculture and clean energy should review their VAT registration status and update their invoicing systems accordingly.
3. Digital Services Tax Expansion
The 1.5% Digital Services Tax (DST) has been extended to cover business-to-business (B2B) cloud computing, SaaS subscriptions, and remote technical support services. Kenyan businesses purchasing foreign digital services must now withhold the tax at source and remit it to KRA by the 20th of the following month.
4. PAYE Band Revision
The monthly personal relief has been increased from KSh 2,400 to KSh 2,800, and the top PAYE bracket threshold has been raised from KSh 769,230 to KSh 850,000 per month. For employers, this means updating payroll systems before the first July 2026 pay run to ensure correct withholding.
Sector Allocations and Business Opportunities
- Agriculture: KSh 82 billion — focus on fertiliser subsidy, grain storage, and agro-processing value chains. SMEs in the agricultural supply chain should register for the revamped e-voucher subsidy platform.
- Health: KSh 141 billion — including KSh 62 billion for the Social Health Authority (SHA). Employers must ensure SHA deduction compliance, as the SHA Act 2023 is now fully operational.
- Education: KSh 645 billion — capitation grants and TVET infrastructure. Training providers and equipment suppliers can expect expanded tender opportunities.
- Infrastructure: KSh 312 billion — roads, railways, and affordable housing. Subcontractors in construction and building materials should review NHIF, NSSF, and NITA compliance before bidding.
- Energy: KSh 89 billion — grid expansion and last-mile connectivity. Renewable-energy installers may benefit from the new VAT zero-rating on solar and wind equipment.
SME and Startup Support Measures
The budget allocates KSh 15 billion to the Hustler Fund for the 2026/27 financial year, with loan limits for individual borrowers increased to KSh 100,000 and group limits to KSh 1 million. Additionally, a new KSh 8 billion MSME Credit Guarantee Scheme will underwrite up to 70% of bank loans to qualifying small businesses with annual turnover below KSh 25 million.
Startups in the technology and green-energy sectors can now apply for a three-year tax holiday under the revised Special Economic Zone (SEZ) regulations, provided they create at least 20 direct jobs and commit to 30% local sourcing.
Compliance and Enforcement
KRA has been allocated KSh 19.8 billion for enforcement and digital modernisation. Key priorities include:
- Full rollout of the electronic Tax Invoice Management System (eTIMS) to all VAT-registered traders by 30 September 2026.
- Integration of betting and gaming platforms with KRA's real-time revenue monitoring system.
- Expansion of the iTax Auto-Assessment pilot to cover rental income and professional service categories.
Businesses that have not yet onboarded eTIMS should treat this as an urgent priority. Avatechtax offers eTIMS readiness assessments and system integration support for SMEs.
What Should Your Business Do Next?
- Update payroll systems before 1 July 2026 to reflect the new PAYE bands and monthly personal relief.
- Review VAT status if you operate in agriculture, renewable energy, or digital services.
- Register for eTIMS if you are VAT-registered and have not yet done so.
- Assess credit eligibility under the new MSME Credit Guarantee Scheme.
- Confirm SHA compliance — all employers must now deduct and remit SHA contributions alongside NSSF and PAYE.
The 2026/27 budget is ambitious, but for well-prepared businesses, it also opens new opportunities. At Avatechtax, we help Kenyan SMEs translate policy changes into actionable compliance and growth strategies. Contact our team for a budget-impact review tailored to your industry.
