Why stability of tax policy should matter for the taxman too

This story has significance for readers across Kenya and beyond.

The public discourse in the run-up to the passing of the Finance Bill, 2026 raised a familiar concern about unpredictable tax changes. Kenyan businesses face a recurring nightmare: implementing new tax rules before they fully understand them.

Even before the ink on the Finance Act, 2026 had barely dried, uncertainty was already rippling through the business landscape.

A recent example appeared in media reports of furniture makers warning of price hikes and job cuts after the introduction of a 30 percent excise duty on imported inputs such as MDF, particle board, blockboard and plywood, a measure that was not contained in the Bill.

Businesses are right to worry. But there is an often-overlooked victim of tax instability, the Kenya Revenue Authority (KRA).

Kenya’s National Tax Policy notes that frequent changes in tax laws cause unpredictability and inefficiency in tax administration and impose additional costs on taxpayers and the revenue administration. The Public Finance Management Act, 2012 also calls for a reasonable degree of predictability in tax rates and the tax base. Stability, then, is not merely an investor issue, but a practical requirement for effective collection and administration.

Unpredictability harms the tax authority through increased disputes and litigation. In October 2024, it was reported that Sh313.5 billion in tax revenue was tied up in the courts and tribunal.

When new rules arrive suddenly or are introduced within a short window to enactment, they often reflect multiple competing views that have not been fully reconciled. The result can be poorly drafted provisions and unclear transition rules, which taxpayers then challenge more frequently and aggressively.

Tax officers subsequently spend significant time preparing objections and defending assessments. Litigation will always have a place in tax administration, but when ambiguity becomes common, disputes stop being exceptional and resources that should go to service, education, and targeted enforcement are absorbed by case management.

Unpredictability also undermines compliance. Tax administration works best when most people comply voluntarily because they trust the system and understand the expectations.

In an unstable environment, even willing taxpayers struggle. Systems may not be updated in time, supply contracts may not anticipate new costs, and guidance may lag the law. Errors become more likely, and uncertainty encourages defensive behaviour. Trust erodes and KRA must then spend more on audits, enforcement and debt collection to achieve the same results.

Instability can also shrink the tax base. When tax policy changes constantly or unpredictably, some firms delay expansion, scale down, or relocate to more stable jurisdictions. The long-term result is fewer stable taxpayers and a heavier burden on the compliant minority.

There is also a direct administrative cost to KRA. Each major change requires updates to tax systems, revisions to internal guidelines, retraining of staff, new public communication, and more time spent answering taxpayer queries. When change is frequent, the tax authority spends more time retooling than on improving service delivery and curbing deliberate tax evasion.

Another cost is weaker revenue forecasting and the creation of unrealistic targets. Frequent changes make it difficult for the National Treasury to estimate what will actually be collected. When forecasts are unreliable, budgeting becomes harder, planning for public services becomes less precise, and debt management becomes more complicated. Pressure then flows to the revenue authority to deliver numbers that may not match economic conditions.

In that environment, overly aggressive assessments can appear as a quick fix. Taxpayers push back, disputes rise, and the cycle returns to costly litigation in which both the state and businesses expend resources that could have supported productive investment.

The lesson is simple, predictability is not anti-tax, it is pro-collection. What should change going forward is not the government’s ability to reform the tax system, but the discipline with which reforms are introduced.

The National Tax Policy recommends that tax laws be reviewed once every five years, and there is ongoing debate as to whether we should even have a Finance Bill every year.

The National Treasury and Parliament can anchor stability by keeping to a clear review cycle, limiting late-stage amendments that were not tested in public participation, and insisting on clear transition rules. When change is necessary, adequate lead time should be provided so that systems and contracts can adjust, and the expected revenue effect can be measured realistically.

Businesses, too, should participate early and constructively, not only by opposing proposals, but by presenting workable alternatives and clear evidence of impact.

Tax policy will always evolve, especially in a country balancing development needs and fiscal pressure. Yet predictable law, orderly change and clear guidance reduce disputes, strengthen compliance, protect the tax base and lower administration costs. If Kenya wants sustainable revenue, stability should be treated as a revenue strategy in its own right.

The author is a consultant within PwC’s Tax Consulting Line of Service

Reporting originally appeared via Business Daily. Read the full source for additional context.