How Mbadi's 'no new tax' budget may increase cost of doing business

Of all the positive bullet points shared by National Treasury Cabinet Secretary John Mbadi about the 2026/27 budget, one that stood out was that his spending plan emphasises tax administration efforts, not burdening Kenyans with more deductions. 

While this chorus has been repeated several times, the downside of it, according to experts, is that the outcome may still be the same for businesses as if there were new taxes. 

They say the cost of doing business may still increase as the taxman enhances surveillance on them, which in turn forces enterprises to seek out audit and tax administering experts to ensure 'dot in every i and cross every t'.

One such example is the plan by the government to shift excise duty on imported mobile phones from the point of import to the point of sale. The rate is also being increased from 10 per cent to 25 per cent, with plans to scrap import and railway development levies on the items to reduce cost. 

However, the decision to shift the duty from the point of import to sale raises a new tax administration question: what would be the cost of complying with this tax? 

If the retailer is to be responsible, which is likely to be the scenario once the Finance Bill becomes law, and regulations are drafted, then this would increase the cost of doing business for tax administration purposes, which would increase the price of the devices. 

This ambiguity has been noted by experts. 

"Under the proposed framework, excise liability may arise after devices have already moved beyond the operational control of importers or manufacturers, dependent on downstream customer registration and telecom network processes outside their direct control," the Institute of Certified Public Accountants of Kenya (ICPAK) argues in its analysis of the Finance Bill 2026. 

While reading his 201-page budget statement last Thursday, CS Mbadi said in preparing the proposals in the Finance Bill 2026, he was guided by the overriding principle of placing the well-being of the common Kenyan first. 

He said he deliberately chose not to introduce new taxes or increase tax rates that would further overburden the hardworking Kenyans and their families. 

"Instead, the measures are focused on reforms that improve efficiency in tax collection, create fairness in the tax system and broaden the revenue base without burdening the mwananchi," he said. 

He argues that today, only 3.1 million working Kenyans contribute to Pay as You Earn (PAYE), yet millions of other Kenyans who make money do not contribute to the taxes we collect.

"Many of these people have been filing nil returns year after year. The burden of developing this country has therefore been on a few of us," he said.

"This must change. We shall continue to broaden our tax base, a process that will help us lower tax rates to ease the burden on the few that are tax compliant." 

While the plan by the CS is not to increase the tax burden, experts argue that the alternative of tax administration is also likely to increase the cost of doing business.

An analysis by tax and audit firm KPMG of the budget statement notes that the government is struggling to balance competing priorities to sustain economic growth, maintain public service delivery, manage a high debt burden, strengthen revenue mobilisation and advance key development objectives 

This is on the backdrop of a population, or at least a section of it, that feels strained financially from both the macroeconomics and increased taxes. 

KPMG notes in the analysis of the shift by the government from new taxes to tax administration. "This reflects lessons learned from public reaction to previous Finance Bills," it says. 

It adds that with the new strategy, businesses should nevertheless expect increased audit activity, expanded use of third-party data and enhanced enforcement measures as the taxman seeks to meet its ambitious revenue targets.

"For businesses, the key implication of the budget is that while significant new taxes have largely been avoided, compliance expectations and enforcement activity are expected to increase substantially as the government pursues its revenue targets," says KPMG. 

As such, it says businesses should prioritise tax governance, compliance readiness and proactive management of their tax affairs.

Tax and business advisory firm Andersen in Kenya details how these tax administration efforts are going to affect even individuals. 

It notes that tax visibility is at the heart of the 2026/27 budget. "With rates largely held, the additional revenue must come from seeing income that was previously invisible - among the self-employed, professionals, landlords and the informal sector," the firm says. 

It notes some of the efforts the Kenya Revenue Authority (KRA) is deploying to broaden income visibility. 

These include pre-populated returns generated by KRA from eTIMS or iTax data, usage of third-party data to smoke out non-compliant individuals as per Section 29A of the Tax Procedures Act, digital invoicing, and the push for non-resident landlords to register and remit rental income monthly.

Movement of crypto and virtual assets is also on the radar of KRA. "Base broadening without simplification risks landing as a heavier compliance burden on the already-compliant," Andersen in Kenya says in the analysis. 

The firm notes how filing has been cut from six to four months, and nil returns are to be done in a month. This is at weekends and holidays now
count.

Andersen in Kenya says a shift from tax-rate increases to compliance-focused administration may improve policy predictability. 

For businesses, however, predictability requires not only stable tax rates but also consistent interpretation, administration and enforcement of tax laws.

"While relatively few headline tax increases are proposed, the cumulative impact of compliance, reporting and enforcement measures may be significant," the firm says.

"Businesses should assess not only their tax liabilities but also their governance, documentation and compliance readiness."