How KRA will tax 60% of undeclared dividends under Finance Bill 2026
By Aloys Michael, May 21, 2026The Kenya Revenue Authority (KRA) is set to gain sweeping new powers to crack down on hidden corporate profits and undeclared shareholder payouts under proposals contained in the Finance Bill 2026.
The proposed law introduces a tough new regime that could see companies slapped with tax assessments equal to 60 per cent of undeclared dividends, marking one of the most aggressive anti-tax-avoidance measures in recent years.
The changes are aimed at firms that distribute profits informally to shareholders without making official dividend declarations or remitting the required taxes to KRA.
According to the Bill, the taxman will have authority to treat certain unexplained payments, benefits, transfers or withdrawals made to shareholders and directors as “deemed dividends,” even where no formal declaration has been made by a company.
The proposed amendments significantly widen the scope of what KRA can classify as dividend income, targeting businesses suspected of concealing profits through related-party transactions, shareholder loans, disguised expenses and informal cash withdrawals.
Tax experts say the effect of the proposal is that companies failing to properly account for distributions could end up facing a combined tax exposure of as much as 60 per cent once corporate tax, withholding tax, penalties and interest are factored in.
“Where profits are distributed indirectly or not fully disclosed, KRA may assess taxes as if the amount were a dividend distributed to shareholders,” the bill reads in part.
The provision gives the authority broad discretion to pursue taxes on funds it believes were extracted from companies without proper declaration.
The proposal comes at a time when the government is under mounting pressure to raise domestic revenue and reduce reliance on borrowing.
No tax evasion?
Treasury has increasingly shifted focus toward sealing tax leakages rather than introducing entirely new taxes, with officials arguing that billions of shillings are lost annually through aggressive tax planning and undeclared shareholder benefits.
If passed by Parliament, the changes are expected to hit closely held companies, family-owned firms and businesses where directors routinely withdraw money from company accounts without formally declaring dividends.
However, the proposal could fundamentally change how businesses manage internal accounts and shareholder payments.
“This is a major compliance shift. KRA is effectively telling businesses that informal withdrawals and undocumented shareholder benefits will no longer escape scrutiny,” Bowmans had warned.
The Finance Bill 2026 also strengthens documentation requirements, meaning companies may be required to provide clearer evidence distinguishing legitimate business expenses from shareholder benefits.
KRA says that the move mirrors global efforts by tax authorities to tighten rules around profit shifting and hidden distributions.
In recent years, KRA has intensified audits targeting private companies, particularly firms reporting low taxable income while shareholders continue enjoying lavish lifestyles, luxury assets and high-value transactions.
The proposed crackdown is likely to spark concern within the business community, especially among small and medium-sized enterprises that often operate with less formal corporate governance structures.
While the industry lobby groups are already expected to push for clearer definitions of what constitutes a deemed dividend, to avoid arbitrary tax assessments and disputes with KRA.
However, Treasury appears determined to proceed with stricter enforcement measures as it seeks to expand the tax base and meet ambitious revenue targets for the 2026/27 financial year.