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The Finance Bill 2026 should build, not drain Kenyan economy
Cabinet Secretary for the National Treasury and Economic Planning John Mbadi Ng'ongo at Parliament Buildings Nairobi on Thursday, June 12, 2025 during the budget reading.
Debate around the Finance Bill 2026 risks becoming too narrowly focused on taxation targets and short-term revenue collection yet the country’s deeper economic challenge today is not simply insufficient taxation. It is insufficient growth, weak private-sector investment, slow industrial expansion, regulatory fragmentation and inadequate mobilisation of long-term domestic capital.
The question MPs should ask is not only how much additional tax can be collected this year but whether the Finance Bill expands or suppresses the future revenue base.
The Central Bank of Kenya has already begun supporting economic recovery through monetary easing. Private-sector credit growth has improved significantly over the past year, signaling that business confidence and investment appetite are beginning to recover. Fiscal policy should complement this recovery, not weaken it through excessive friction on productive sectors.
Take manufacturing. Kenya already has investment allowances, industrial building deductions, Export Processing Zones and Special Economic Zones. The issue is not the absence of incentives. It is the erosion of certainty.
Manufacturers still face high electricity costs, expensive credit, inter-county cess, duplicated permits and logistics inefficiencies that reduce competitiveness against countries such as Vietnam and India. Kenya cannot industrialise through taxation alone. It must compete through productivity, scale and investment predictability.
The same problem exists within the digital economy. Kenya has a digital tax framework through the Significant Economic Presence Tax and platform withholding rules. The danger now is over-layering taxes onto the very systems that have accelerated financial inclusion and SME formalisation.
Kenya’s mobile-money ecosystem remains one of the country’s greatest competitive advantages globally. Increasing friction on payment systems, merchant fees and software platforms may slow formalisation, instead of increasing sustainable revenue.
Similarly, smartphones and digital devices should increasingly be viewed as productivity infrastructure rather than luxury goods. A smartphone today is a banking platform, educational tool, agricultural information system, and a small business operating device.
Excessive taxation of digital access risks weakening e-commerce, mobile banking and future tax visibility within the digital economy itself.
Another critical issue is business liquidity. The Finance Act 2025 introduced reforms around tax offsets and refunds, but implementation remains uncertain, while some provisions under discussion risk reversing cash flow relief.
Delayed VAT refunds and pending government bills continue to drain working capital from the private sector. The government cannot expect businesses to invest, expand and employ while simultaneously withholding liquidity from the same productive sectors it relies on for future tax revenues.
Perhaps the most important long-term issue, however, is domestic capital formation. Kenya cannot continue relying primarily on external borrowing and short-term domestic debt markets to finance infrastructure and economic expansion.
Fortunately, the country already has one of the largest pools of long-term domestic savings in the region. Pension assets now exceed Sh2.8 trillion, and Parliament is considering the National Infrastructure Fund to tap them.
This presents a major opportunity. If properly structured, Kenya can mobilise pension capital into productive infrastructure, logistics systems, industrial parks, irrigation and energy expansion.
Countries such as Australia, Chile and South Africa have demonstrated how pension systems can deepen domestic capital markets and support national development when governance structures are transparent and professionally managed.
The missing link in Kenya is not the capital itself. It is investment architecture, regulatory consistency and long-term policy confidence.
The Finance Bill 2026 should, therefore, evolve from a narrow revenue-extraction framework into a broader growth-and-investment framework. Kenya’s long-term fiscal sustainability will not come from taxing a stagnant economy more aggressively. It will come from building a larger, more competitive and more productive economy.
The writer is an industrialist and former chairman of the Kenya Association of Manufacturers.
