3 New Laws and Taxes That Will Affect Your Money in 2026

3 New Laws and Taxes That Will Affect Your Money in 2026

In 2026, many Kenyans are planning their finances around school fees, rent, and everyday living costs. However, beyond household expenses, several policy and regulatory changes will quietly reshape how much money you take home.

From enhanced tax verification rules to higher statutory deductions, 2026 will require more financial awareness than previous years. Whether you are employed, self-employed, or running a small business, these changes will affect your cash flow in different ways.

Here are three major laws and tax-related changes that will affect you in 2026.

1. KRA’s New Tax Validation System

Starting January 1, 2026, the Kenya Revenue Authority (KRA) will roll out a stricter tax return verification framework under a policy announced in November 2025.

Under the new system, all tax-deductible expenses must be backed by valid electronic documentation. Specifically, KRA will only recognise expenses supported by ETIMS (Electronic Tax Invoice Management System) receipts and valid withholding tax certificates.

This means that expenses without proper electronic proof — even if they were genuine — will not be allowed as deductions.

For many Kenyans, especially freelancers, consultants, landlords, and small business owners, this is a significant shift. Previously, some expenses could be claimed using manual receipts or informal records. Going forward, those claims may be rejected outright.

The immediate implication is higher taxable income. If your deductions are disallowed due to missing electronic invoices, KRA will treat that amount as income, which could push you into a higher tax bracket or increase your PAYE or income tax liability.

There is also a penalty risk. Incorrect or unsupported returns may attract fines and interest, especially during audits.

“This validation will take place upon submission of the 2025 year of income/accounting period via the iTax platform,” the KRA statement issued in November read in part.

“All declared income and expenses must be supported by a valid electronic tax invoice, correctly transmitted with the buyer’s PIN, where applicable, subject to exceptions provided under Section 23A of the Tax Procedures Act, Cap 469B, and the Tax Procedures (Electronic Tax Invoice) 2024.”

2. Increase in NSSF Deductions

Statutory deductions under the National Social Security Fund (NSSF) will continue rising in 2026, further reducing employees’ net pay.

Currently, the maximum monthly NSSF contribution stands at Ksh4,320. From February 2026, this figure will increase to Ksh6,480. At the same time, the lower income threshold will rise from Ksh8,000 to Ksh9,000, while the upper limit will jump from Ksh72,000 to Ksh99,000.

Employers are required to match employee contributions, meaning businesses will also experience higher payroll costs.

For employees, the effect will be felt directly in their payslips. For Kenyans earning more than Ksh50,000, their take-home pay could be reduced by up to Ksh2,000 per month.

Under the revised NSSF contribution structure, employees earning Ksh75,000 will now take home Ksh54,735, down slightly from Ksh54,861, following an increase in their monthly NSSF deduction to Ksh4,500.

For those with a gross salary of Ksh100,000, net pay will drop to Ksh70,442, compared to the current Ksh71,618, as their NSSF contribution rises to Ksh6,000.

Employees earning between Ksh200,000 and Ksh1 million will now contribute the maximum NSSF amount of Ksh6,480 per month.

As a result, a Ksh200,000 earner will see their take-home pay decline from Ksh138,643 to Ksh137,131, while someone earning Ksh300,000 will experience a reduction from Ksh205,668 to Ksh204,256.

At the higher end, individuals earning Ksh500,000 will now receive Ksh338,206 after deductions, compared to Ksh339,718 previously. Meanwhile, those on a Ksh1 million gross salary will see their net pay fall from Ksh659,684 to Ksh658,280.

3. Potential Reduction in PAYE

In a move that could provide some relief, Treasury Cabinet Secretary John Mbadi, in 2025, stated that the government intends to lower PAYE for employed Kenyans.

The proposal was initially expected to feature in the 2025/2026 financial year, but it was postponed due to fiscal pressure and revenue shortfalls. The National Assembly’s Finance Committee has indicated that PAYE reduction is being actively considered for the 2026/2027 Finance Bill.

The key proposal under discussion is an increase in the tax-free income band, which currently stands at Ksh24,000 per month. While the new threshold has not yet been disclosed, any increase would reduce the portion of income subject to PAYE, resulting in higher take-home pay for many employees.

That said, this change is not guaranteed. The final decision will depend on government revenue needs, debt obligations, and broader economic conditions.

Kenyans should therefore treat this as a potential upside rather than a certainty when planning their 2026 finances.

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