KSh 4.8 Trillion Budget: Mbadi Pushes Earlier Nil Return Filing to Plug Tax Leaks

Treasury Cabinet Secretary John Mbadi has proposed sweeping changes to Kenya's tax administration system. The measures include new filing deadlines that would require taxpayers with nil returns to submit their annual declarations just one month after the end of the tax year.

The proposal, contained in the 2026/2027 budget policy highlights, seeks to give the Kenya Revenue Authority more time to verify and validate tax returns before the start of a new financial year.

Mbadi told Parliament on Thursday afternoon that the current system leaves little room for scrutiny of submitted returns. The existing deadline of 30th June for all categories creates bottlenecks.

To provide sufficient time for verification, he proposes revisions to the timelines for filing individual income tax returns. Taxpayers filing nil returns would submit them within one month after the end of the year of income.

Individuals whose earnings are fully taxed at source, such as salaried employees with only employment income, would file within four months after the tax year ends. All other taxpayers would continue filing by June 30.

These filing reforms form part of a broader package aimed at plugging revenue leakages and expanding the tax base. They are expected to affect millions of Kenyans who file nil returns annually.

Additional proposals target offshore transactions involving Kenyan assets. Gains from such transfers would attract tax regardless of where the deal is structured or where beneficial owners reside.

The Treasury also wants to address companies that retain profits indefinitely to defer dividend taxes. A minimum deemed dividend distribution threshold of 60 percent of undistributed income is on the table.

Modernisation efforts address digital commerce, software payments and cross-border transactions. Clarifications on royalties and management fees aim to reduce ambiguities and revenue leakage.

The gambling sector faces new rules too. Winnings from betting, lotteries and prize competitions would attract withholding tax as ordinary income.

For the construction industry, these changes carry practical implications. Many contractors, consultants and suppliers operate with variable project cash flows that can result in periods of nil returns. Earlier filing could mean tighter compliance schedules and quicker KRA audits on project-related claims.

Firms involved in public-private partnerships or real estate investment trusts, already eyeing incentives in the wider budget, will need to align their tax planning with the revised timelines. Delays in government payments often push businesses into nil return territory.

The reforms signal a push for greater efficiency in tax administration. Observers in engineering and infrastructure circles will track how the changes affect working capital and project bidding strategies especially for wakulima wadogo.