KRA Reintroduces Tax Amnesty Programme Under Finance Act 2026, Waiving All Penalties and Interest on Pre-2026 Principal Tax Debts Until 31 December 2026

KRA has reintroduced a tax amnesty programme under the Finance Act 2026, covering all penalties, interest, and fines on principal tax debts accrued up to 31 December 2025. The programme opens on 1 July 2026 and closes on 31 December 2026. Four pathways are available: automatic waiver for taxpayers who have already paid their principal by 31 December 2025 (no application required); automatic late filing penalty relief for taxpayers with no principal due once all outstanding returns are filed; immediate amnesty on lump-sum settlement of outstanding pre-2026 principal during the window; and structured payment plans via KRA iTax where all principal must be cleared by 31 December 2026. Tax liabilities arising on or after 1 January 2026 are excluded. Taxpayers in active litigation are directed to KRA's Alternative Dispute Resolution framework to settle principal amounts and unlock amnesty benefits. Previous cycles recovered Ksh80.9 billion in principal. For businesses, individuals, and legal counsel managing tax disputes or outstanding obligations, this is a time-bound opportunity to resolve pre-2026 tax exposure at significantly reduced cost.

Kenya's tax amnesty programme has been reintroduced for a third cycle, each time recovering substantial principal while regularising taxpayers who would otherwise remain outside the formal compliance system. The prior two cycles together recovered Ksh80.9 billion in principal tax payments. The Finance Act 2026 reintroduces the programme with the same core mechanism: waive all accumulating interest and penalty, which for long-standing tax debts can dwarf the principal itself, to create a financially viable path for settlement that neither KRA nor the taxpayer could reach through ordinary enforcement.

The programme's structure is more sophisticated than a blanket amnesty. It distinguishes between taxpayers who have already paid their principal (automatic waiver, no action required), those with filing arrears but no principal due (file the returns and the penalty disappears), those able to pay in full now (immediate waiver on settlement), and those needing time (structured payment plan with a December 2026 deadline). That differentiation reflects a genuine attempt to address the different circumstances that produce outstanding tax obligations, rather than treating all non-compliance as equally deliberate. For compliance teams and tax advisers, the first task is to identify which pathway applies to each client or portfolio exposure.

The tax amnesty is authorised under the Finance Act 2026, which took effect on 1 July 2026, and operates within Kenya's tax administration framework under the Tax Procedures Act, No. 29 of 2015. The Tax Procedures Act governs the assessment, collection, enforcement, and dispute resolution of tax liabilities in Kenya, including the powers of KRA to waive penalties and interest. The KRA Alternative Dispute Resolution framework, referenced in the press release for taxpayers in active litigation, is established under Section 55 of the Tax Procedures Act, which empowers the Commissioner to enter into alternative dispute resolution to settle tax disputes without court proceedings.

The exclusion of post-2025 liabilities is consistent with prior amnesty cycles and reflects the policy intent: the programme addresses accumulated legacy obligations rather than providing ongoing relief for current non-compliance. Tax liabilities arising on or after 1 January 2026, including those under the new Finance Act 2026 provisions that took effect on 1 July 2026, remain fully due with all applicable penalties and interest. This distinction is material for compliance teams managing portfolios that span both pre-2026 legacy obligations and new obligations under the Finance Act 2026 provisions covered in Briefly's earlier analysis.

The automatic waiver for taxpayers who have already cleared their principal by 31 December 2025 is the provision most likely to be underutilised. A taxpayer who paid their principal but has not engaged with KRA about outstanding interest and penalties may not know they qualify for a waiver without any further action. Compliance teams and tax advisers should audit client accounts on KRA iTax specifically for this scenario, because the waiver is available without a formal application but may not appear automatically in the system without some form of account review or engagement with KRA. The press release says no formal application is required, but in practice, confirming that the waiver has been applied to a specific account requires verification.

The structured payment plan pathway is the one with the most complex compliance requirements. Taxpayers entering a payment plan via iTax must clear all principal by 31 December 2026 to qualify for the waiver. That means a taxpayer who enters a plan in October 2026 has only three months to clear potentially substantial principal arrears. For businesses with large outstanding principal balances, the feasibility of structured settlement within the window depends on cash flow planning that should start now rather than in the fourth quarter. Tax advisers should be having that conversation with clients immediately, since the window is already open and six months is not as long as it appears when December deadlines typically involve competing year-end financial obligations.

The ADR pathway for litigating taxpayers is worth specific attention for legal counsel with clients in active KRA disputes. The amnesty does not automatically apply to disputed assessments; the taxpayer must engage the ADR process to agree on the principal amount and then settle it within the window to unlock the waiver. That is a two-step process that requires both a negotiated agreement on quantum and a payment, within a window that closes on 31 December 2026. For disputes that have been running for years, the amnesty creates a genuine incentive to reach a negotiated settlement on the principal now rather than continuing to litigate, since the accumulating interest and penalties that make many tax disputes economically unresolvable disappear upon settlement. Legal counsel should be assessing every active KRA dispute in their portfolio against this framework.

The amnesty window is open and the deadline is firm. Taxpayers with pre-2026 obligations, whether paid principal awaiting waiver confirmation, outstanding returns, lump-sum settlement capacity, or active disputes, have six months to act at a cost that will not be available again after 31 December 2026. The economic case for engagement is straightforward. The administrative task of identifying which pathway applies and executing within the window is where compliance teams and advisers need to focus now.