The Association of Chartered Certified Accountants (ACCA) Eastern Africa has opposed provisions in the Finance Bill, 2026, that would require private companies to distribute at least 60 per cent of retained earnings or risk having the amounts treated as deemed dividends for tax purposes.
Appearing before the National Assembly Departmental Committee on Finance and National Planning during stakeholder submissions on the Bill, the accountants’ lobby urged lawmakers to revise the proposal under Clause 16 and instead adopt a maximum threshold of 30 per cent.
According to ACCA, the proposed 60 per cent threshold would place businesses under unnecessary financial pressure and undermine their ability to maintain operational cash flow and fund expansion plans.
“The threshold minimum of 60 per cent of retained earnings at the risk of being deemed dividend is likely to compromise cash flow of businesses, which on most occasions have genuine and defensible reasons for retaining earnings such as operational cash flows, growth and expansion,” ACCA submitted.
The association argued that the proposal would particularly hurt small and medium-sized enterprises, noting that dividend withdrawals may not always be practical, especially given the high cost of accessing bank financing.
ACCA also opposed Clauses 18 and 19(a) of the Finance Bill, which propose shortening tax filing and compliance timelines from six months to four months.
The accountants warned that compressing statutory audits, tax balance payments and return filings into a shorter timeline would place significant strain on businesses and negatively affect tax compliance.
“As a country, businesses do not have capacity to complete these obligations in one month and will impose a strain on businesses,” ACCA told lawmakers.
The association further noted that a majority of Kenyan businesses remain in the informal sector and argued that efforts should first focus on formalisation and strengthening compliance systems before implementing stricter timelines.
Committee members, however, challenged the opposition, urging firms to embrace automation of business operations.
Lawmakers argued that shorter filing periods could encourage companies to hire more accounting professionals to meet compliance deadlines.
In response, ACCA maintained that it was not opposed to reforms but questioned whether the Kenya Revenue Authority (KRA) systems were adequately prepared to support the proposed transition.
The association urged Parliament to delay the implementation of the revised filing periods until KRA strengthens its back-end infrastructure.
ACCA also raised concerns over proposed amendments affecting withholding tax, arguing that some provisions appeared designed to override a Supreme Court ruling involving Barclays Bank of Kenya, now ABSA Bank Kenya PLC, and the Commissioner of Domestic Taxes.
“The proposed amendment appears to be a direct legislative response to the Supreme Court of Kenya’s decision in Barclays Bank of Kenya Limited (now ABSA Bank Kenya PLC) v Commissioner of Domestic Taxes, where the Court held that interchange and merchant service fees are operational settlements between financial institutions and not management or professional fees, and therefore fall outside the scope of withholding tax,” ACCA said.
The association warned that reversing court decisions through legislation whenever KRA loses tax disputes could undermine legal certainty and public confidence in the tax system.
It further argued that classifying card network fees and digital platform access fees as royalties for withholding tax purposes could increase financial service costs and discourage investment in Kenya’s digital payment ecosystem.
On Value Added Tax (VAT), ACCA opposed the proposal under Clause 31(a)(vii) to remove VAT exemptions on construction materials used in affordable housing projects.
The association said building materials account for up to 60 per cent of construction costs and warned that removing the exemption could increase house prices by between 8 and 10 per cent.
“The household the programme is designed to serve is the household priced out first,” ACCA stated.
The lobby further cautioned that scrapping the exemption could hurt local manufacturers by increasing production costs and encouraging the return of cheaper imported products.
“Its removal raises landed cost across the board and invites cheaper imported substitutes back into the value chain, thereby undermining the manufacturing pillar of the government agenda,” ACCA submitted.
Additionally, the association opposed Clause 45 of the proposed amendments to the Tax Procedures Act, which would allow KRA to initiate enforcement actions such as asset seizures and bank account attachments even when a taxpayer’s appeal is still pending before a tribunal or court.
“Deleting paragraph (e) would allow the Commissioner to commence enforcement and recovery actions even while a taxpayer has lodged or still has the right to lodge an appeal at the Tribunal or Court. This undermines the right to fair administrative action and access to justice by rendering the appeals process ineffective,” ACCA argued.
The association urged lawmakers to prioritise stability in tax legislation, warning that frequent annual changes to tax laws undermine predictability and conflict with Kenya’s National Tax Policy framework.
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