Strengthen Income Tax (Amendment) Bill 2026 to protect ordinary Kenyans: Oxfam urges parliament

Oxfam Kenya today appeared before the Finance and National Planning Committee to present submissions on the Income Tax (Amendment) Bill 2026 calling on Parliament to strengthen the Bill's equity safeguards, close its anti-avoidance gaps, and ensure that any relief for corporate shareholders is matched by progressive countermeasures that protect ordinary Kenyans.

The Income Tax (Amendment) Bill 2026 (National Assembly Bills No. 20) amends the Income Tax Act (Cap. 470) through two operative clauses: Clause 2 (amending Section 7) and Clause 3 (amending the Eighth Schedule). Together, they create a capital gains tax (CGT) exemption for property transfers during internal corporate re-organisations specifically, transfers between a company and its shareholders where no property moves to a third party outside the corporate group. Oxfam Kenya acknowledges the technical merit of this principle: CGT is intended to apply when a genuine economic gain is realised through a market transaction, not when value is merely reclassified within a corporate structure. This is a legitimate and internationally recognised correction, and it reduces compliance costs especially for small and medium enterprises. However, acknowledging the principle does not mean accepting the design, the design, as currently drafted, has serious gaps that Parliament must address before this Bill becomes law.

On Clause 2: Amendment of Section 7(1): This clause removes the income tax liability that would otherwise arise when a company transfers assets to shareholders during an internal reorganisation. As it stands, the exemption applies equally to all shareholders regardless of the size or value of the transaction meaning a billionaire shareholder and a modest investor receive identical treatment. Oxfam Kenya proposes that the exemption be capped at KES 50 million per shareholder per reorganisation a threshold anchored in KRA's own High Net Worth Individual (HNWI) administrative framework and equivalent to approximately five times Kenya's highest PAYE income band so that genuine SME restructurings are fully protected while high-value transfers by wealthy shareholders still attract CGT on the excess. The provision should also include a 5-year sunset clause requiring parliamentary renewal following a revenue impact review, and a mandatory disclosure requirement obliging companies to file a preliminary notification to KRA within 14 days and a full independent valuation report within 60 days, with automatic voidance of the exemption and a penalty of KES 200,000 or 1% of asset value for non-compliance because a disclosure obligation without enforcement consequences is a paper requirement that will be routinely ignored.

 On Clause 3(a): CGT Exemption in the Eighth Schedule: This clause inserts the core exemption into the Eighth Schedule, covering both directions of transfer company to shareholders and shareholders back to company subject to two conditions: proportionality of distribution to existing shareholding, and a requirement that transferred shares relate to a subsidiary. Oxfam Kenya's concern is that the "internal reorganisation" definition is insufficiently anti-abuse. Kenya has no General Anti-Avoidance Rule (GAAR) and no step-transaction doctrine, meaning sophisticated corporate structures can engineer pre-arranged multi-step transactions where genuine external disposals are preceded by internal reorganisations designed to extract the exemption at each step. Oxfam Kenya proposes that a step-transaction clause be inserted providing that where a series of transactions are pre-arranged and, viewed together, result in an effective disposal to a third party, the exemption shall not apply to any step in the series and that a comprehensive GAAR be enacted in the Finance Bill 2026, consistent with the approach already taken by South Africa, Ghana, and Uganda. Furthermore, the proportionality baseline should be assessed not merely "immediately before" the transfer but at the earlier of that date or 12 months before commencement of the reorganisation plan, consistent with UK and Australian reorganisation relief provisions. All transferred assets must be independently valued by a registered valuer under the Valuers Act (Cap. 532), and land and high-value immovable property which account for over 60% of Kenya's CGT potential per KRA estimates should be excluded from the exemption or subject to a reduced rather than zero rate, given the well-documented incidence of land-based wealth accumulation and avoidance in Kenya.

On Clause 3(b): Definition of "Internal Reorganisation": The current definition "a restructuring of the ownership or control of a company or its assets which does not involve a transfer of property to a third party" is circular and under-inclusive. It defines the concept by what it is not, rather than what it is, creating interpretive uncertainty about whether transfers to related parties who are technically not "third parties" qualify, and whether purely tax-motivated restructurings with no genuine commercial substance are covered. Oxfam Kenya proposes replacing this negative definition with a positive one: "internal reorganisation" means a restructuring that is undertaken for genuine commercial purposes, results in no net change in the ultimate economic ownership of the transferred property and does not involve a direct or indirect transfer of property to a person outside the same corporate group. The definition should also define "control" by cross-reference to a uniform standard holding more than 50% of voting rights or the ability to direct financial and operating policies include a "main purpose" anti-avoidance test consistent with the OECD Commentary on Article 13 of the Model Tax Convention, impose a minimum 2-year holding period on transferred assets with full CGT liability reinstated on early disposal, and align with the meaning of "reconstruction and amalgamation" under Part XXIV of the Companies Act 2015 to ensure legal coherence across Kenya's statute book.