Experts and lawyers warn Bill makes KRA judge and executioner

The Finance Bill, 2026, seeks to let the taxman reclassify any commercial deal as tax avoidance [Courtesy]

The Kenya Revenue Authority (KRA) is set to assume unprecedented powers that critics say will make it judge, jury, and executioner in tax disputes.

The Finance Bill, 2026, seeks to let the taxman reclassify any commercial deal as tax avoidance, seize bank accounts while appeals are pending, and mine private payment data without court approval.

The proposal has drawn opposition from the Kenya Bankers Association (KBA), the Law Society of Kenya (LSK), and four major audit firms, Ernst & Young, Deloitte, PwC, and KPMG. At the heart of the backlash is a set of clauses that, according to legal and industry experts, dismantles decades of taxpayer safeguards.

The parties reckon the commissioner becomes the prosecutor, the judge, and the executioner, with taxpayers likely to be forced to pay disputed taxes first and seek justice later.

Clause 41 of the Bill inserts Section 18A into the Tax Procedures Act, empowering the KRA commissioner to disregard any arrangement he determines to be a “tax avoidance scheme” and to reassess the taxpayer’s liability “as if the scheme had not been entered into”. 

The commissioner may rely on information from e‑TIMS, mobile money records, bank data, withholding tax filings, and even international exchanges.

The definition of “scheme” is broad, covering any express or implied agreement that virtually every corporate restructuring, intra‑group loan, or financing arrangement could fall under scrutiny.

Critics, including the LSK, reckon the commissioner has been given a blank cheque, and that without objective criteria or a requirement to issue reasoned decisions, this provision invites arbitrary application and would inevitably lead to a flood of litigation.

Ernst & Young noted that the absence of a clear definition of “tax benefit” and the lack of a mandatory prior hearing mean a company could be assessed for additional tax years after a transaction was completed, based solely on the commissioner’s subjective opinion. This creates “unacceptable uncertainty” for long‑term investment.

Deloitte recommended that the clause be revised to require the commissioner to issue detailed reasons, cite supporting evidence, and grant taxpayers the right to make representations before any avoidance determination is finalised. As drafted, it blurs the line between legitimate commercial planning and aggressive avoidance, Deloitte said.

Even more contentious is Clause 45, which deletes Section 42(14)(e) of the Tax Procedures Act. That subsection currently prohibits KRA from issuing an agency notice to freeze bank accounts, intercept payments from debtors, or garnish salaries while a taxpayer’s appeal is pending before the Tax Appeals Tribunal or a court.

The same proposal was rejected in the Finance Bills 2024 and 2025 after massive stakeholder opposition. But it has returned in 2026.

KBA, representing Kenya’s 38 commercial banks, said the provision would “render the appeal process nugatory".

“Where a taxpayer ultimately succeeds on appeal, the harm may be irreversible businesses can be pushed into insolvency before they ever see a hearing.”

LSK cited a recent ruling in which the High Court found that KRA cannot lawfully issue agency notices against a taxpayer’s bank accounts without proving compliance with statutory due process, especially where earlier assessments had already been set aside.

“By deleting this safeguard, the Bill is openly inviting the executive to ignore judicial authority,” stated LSK, a submission supported by the Institute of Public Finance.

Beyond enforcement, the Bill expands KRA’s surveillance reach. Clause 38 requires virtual asset service providers (VASPs) to file annual returns disclosing all reportable users and controlling persons, with penalties of Sh1 million for failure to file. 

Clause 75 allows the commissioner to generate pre‑populated tax returns using third‑party data from telcos, banks, payment platforms, and mobile money systems.

(IPF) also rejected the deletion, saying it would undermine confidence in the tax dispute resolution framework and coerce taxpayers into settling baseless claims out of fear of immediate financial ruin.

While Treasury has denied that KRA will access individual mobile money transaction histories, critics say the bill does not expressly limit the data sources or require prior consent. 

LSK warned that cross‑border sharing of virtual asset information under proposed Section 6D lacks data protection safeguards and parliamentary oversight. “This is not just tax administration, it is mass surveillance without a warrant,” one tax partner at a Big Four firm told Standard on condition of anonymity.

Critics noted that the aggressive powers come at a time when salaried Kenyans are already overburdened. The bill makes no change to the Pay As You Earn (PAYE) bands, leaving the top rate at 35 per cent, higher than the corporate tax rate of 30 per cent. 

In contrast, the bill proposes to deem 60 per cent of undistributed company profits as dividends, forcing cash‑strapped firms to pay tax on money they have not distributed.

EY and Deloitte both recommended deleting the 60 per cent deemed dividend clause, arguing it penalises legitimate retention of earnings for reinvestment, debt servicing, or economic uncertainty. Businesses that need to conserve cash to survive will be taxed as if they paid dividends they cannot afford, Deloitte said.

KBA added that the banking sector, which has contributed Sh1.1 trillion in taxes since 2018, relies on retained earnings to meet capital adequacy requirements. “Forcing a 60 per cent distribution would weaken the very institutions that finance the economy,” the association warned.