Kenya’s Finance Bill 2026 is packed with tax measures, but tucked inside its provisions are changes that could reshape how the government, private investors and businesses engage with the education sector.
The bill proposes amendments to the Income Tax Act that touch on educational buildings, university research, school fees for employees’ dependants, and the tax status of educational institutions themselves.
For anyone thinking of building a school, college, or student hostel, the bill offers a tax incentive. Under the proposed Second Schedule to the Income Tax Act, investors who put up educational buildings, including student hostels, can deduct 10% of their construction costs from their taxable income every year, in equal instalments.
The deduction falls under what the bill calls an investment allowance, which allows a person who incurs capital expenditure on a specified item to reduce the income on which their tax is calculated.
The 10% rate for educational buildings is however on the lower end of what the bill offers for other building types. Hotel buildings, hospital buildings and buildings used for manufacture all attract a 50% deduction in the first year of use alone. Educational buildings get no such front-loaded relief, receiving instead a steady 10% spread across years, the same rate given to commercial buildings and docks.
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There is also a condition. The bill states that an educational building must be licensed by the competent authority before an investor can claim the allowance. An unlicensed school or hostel does not qualify. The bill does not name which authority is responsible for issuing that licence.
Companies that fund scientific research through universities and colleges also benefit. The bill allows businesses to deduct payments made to any university, college, research institute, or other similar institution from their taxable income, as long as that institution has been approved for that purpose by the Commissioner of Income Tax. The payments must be for scientific research. Businesses can also deduct both capital and non-capital expenditure they incur directly on scientific research for their own purposes.
Employers who pay school fees for their workers’ children or relatives will however find no relief in the bill. Under Section 16 of the Income Tax Act, which the bill proposes to amend under the heading “Deductions not allowed,” educational fees paid for an employee’s dependants or relatives are explicitly listed among personal and domestic expenditures that cannot be deducted.
The bill places school fees for dependants in the same category as entertainment expenses for personal purposes and vacation trip costs.
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Schools, colleges and education-focused trusts are themselves shielded from tax under the bill. Paragraph 10 of the First Schedule to the Income Tax Act exempts from tax the income of any institution, body of persons, or irrevocable trust of a public character established solely for the advancement of education, subject to conditions.
The institution must either be established in Kenya or have its regional headquarters in Kenya. Where an institution earns income from business activities, that income is only exempt if the profits are applied solely to educational purposes and the business is carried on in the course of executing those purposes.
The bill further defines what qualifies as a public character institution. It must benefit the public in a transparent and accountable manner without restriction or discrimination, use its assets and income exclusively for its stated purpose, and must not confer private benefit on any individual.
The tax exemption is valid for five years, may be revoked by the Commissioner for just cause, and must be issued within 90 days once an applicant has met all the requirements.
By Benedict Aoya
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