By Andrew Kariuki
The Office of the Controller of Budget has raised concerns over potential revenue leakages in the proposed Income Tax (Amendment) Bill, 2026, warning that the legislation could expose the country to significant tax losses if not strengthened.
The concerns were raised during a stakeholder engagement convened by the Departmental Committee on Finance and National Planning, where participants largely supported the Bill but called for stronger safeguards to prevent abuse.
The proposed law, sponsored by Kuria Kimani, seeks to ease corporate restructuring by exempting certain internal property transfers from Capital Gains Tax.
The Bill aims to provide tax relief where assets are transferred between a company and its shareholders during internal reorganisations, provided there is no involvement of third parties.
While stakeholders described the proposal as progressive and aligned with global best practices, the Controller of Budget cautioned that the current provisions may not be stringent enough.
“Capital Gains Tax is a constitutionally sanctioned revenue stream appropriated through Finance Acts. A permanent CGT exemption for internal reorganisations, without a sunset clause or review mechanism, creates an open-ended revenue risk,” the office noted.
To mitigate the risks, the office proposed that companies benefiting from the exemption be required to remain tax-resident in Kenya for at least three years after restructuring.
It argued that such a measure would prevent firms from restructuring and quickly disposing of assets to third parties after enjoying tax relief.
The Controller of Budget also recommended a mandatory review of the exemption’s revenue impact three years after enactment, as well as a requirement for large transactions exceeding Ksh500 million to obtain prior approval from the Kenya Revenue Authority.
The session was chaired by Umul Ker Kassim, who acknowledged the concerns and invited stakeholders to propose stricter safeguards.
“We are open to suggestions on stricter regulations we can put in place to ensure that the provisions of this Bill only serve the purpose for which they were intended,” she stated.
Other stakeholders also called for tighter controls, with civil society groups warning that without adequate safeguards, the exemptions could undermine Kenya’s domestic resource mobilisation efforts.
Professional services firms, on their part, urged clearer definitions and better alignment within the law to eliminate potential loopholes.
Despite the concerns, many industry players maintained that the Bill could significantly improve Kenya’s investment climate by reducing tax burdens associated with corporate restructuring.
The Committee is expected to compile its report on the Income Tax (Amendment) Bill, 2026, alongside the Sovereign Wealth Fund Bill, 2026 and the Public Finance Management (Amendment) Bill, 2025, ahead of debate in the National Assembly next week.
