Kenya: Inside the Finance Bill 2025

published on 15 May 2025 | reading time approx. 4 minutes

The Kenyan Finance Bill 2025 was published on 6 May 2025 after submission to the National Assembly by the Cabinet Secretary for National Treasury and Economic Planning. It follows an earlier submission of the Budget Policy Statement 2025 which already outlined the Kenya Kwanza Government's strategic priorities, revenue-raising and spending plans for the Fiscal Year 2025/26. The Public Finance Management Act, 2012 provides that a Finance Bill be published every year to propose amendments to laws relating to various taxes and duties in line with plans set out under the Budget Policy Statement.

In this edition we have outlined the major proposals under the 5 main tax laws.

Income Tax Act highlights

PAYE

Repeal of special deduction for regional employees who are non-Kenyans.
Tax free per diem ceiling to be increased from Kshs. 2,000 to Kshs. 10,000
Exemption of gratuity and other allowances paid under a public pension scheme reaffirmed.
Compulsory granting of all applicable deductions, reliefs and exemptions in computation of PAYE.
Mortgage interest relief extended to loans acquired for construction of owner-occupied residential houses.

Withholding Tax

Clarification of Royalty definition to include regular payments made for the use of software through distributors.

Other income taxes (aside from PAYE)

Limitation of offset period for tax losses set at 5 years.
100% investment allowance for diminution in value of loose tools.
Replacement of allowability of sponsorship for sporting activities with construction of public sports facilities.
Revocation of the 100% investment deduction for entities that have cumulative investment of Kshs. 1B in the preceding 3 years outside Nairobi and Mombasa; and costs incurred in investment in SEZs; and 150% for investments exceeding Kshs. 1B.

Introduction of Advance Pricing Agreements for Transfer Pricing purposes.
Requirement to file a Country-by-Country (CbC) report in Kenya by all MNE groups with a turnover above Kshs. 95 billion, regardless of any preexisting reporting obligations or exemptions in other jurisdictions.
Preferential corporate tax rate of 15% for the first 10 years from the year of commencement of operations and 20% for the subsequent years for investors in the Nairobi International Financial Center.
Reduction of Digital Asset Tax rate from 3% to 1.5%.
Set up of due date for Minimum Top-Up Tax to end of the 4^th month after the end of the year of income.
Repeal of the Kes. 5M threshold for complying with the Significant Economic Presence Tax (SEPT).
Extension of scope of SEPT to businesses carried out over the internet or an electronic network including through a digital marketplace.
Repeal of the special tax rate of 15% for companies engaged in local assembly of motor vehicles and companies constructing at least 100 residential units annually.

VAT Act Highlights

Requirement for taxpayers to account for VAT where inputs acquired under exempt or zero-rated status are subsequently utilized in a manner inconsistent with the intended purpose.
Timeline for application of VAT refunds from bad debts reduced to 2 years from 3 years.
Reduction of timeline for lodging VAT refund claims from 24 months to 12 months.
Changes in classifications for various supplies from exempt to zero-rated status.

Excise Duty Act Highlights

Amended definition of digital lender to mean a person extending credit through an electronic medium but not institutions regulated by the Banking Act, Co-operative Societies Act or Microfinance Act.
Clarification of definitions for non-resident person, digital marketplace and place of supply.
Harmonization of tariff classification under the Excise Duty Act with the East African Community Common External Tariffs (EACCETs).4
Commissioner's decision on license applications set at within 14 days of receipt of the required documents.

Miscellaneous Fees and Levies Act Highlights

Reduction of Export and Investment Promotion Levy on certain items.
Restriction of Import Declaration Fees (IDF) and Railway Development Levy (RDL) exemptions for aircraft and related goods.
Harmonization of refund procedures with those under the Tax Procedures Act for refund of fees and levies paid erroneously or in excess.

Tax Procedures Act Highlights

Enabling of Commissioner's power to issue agency notices to non-resident persons subject to tax in Kenya.
Right of access by the Commissioner to taxpayers' data including trade secrets, private and personal data.
Extension of refund processing period by Commissioner from 90 days to 120 days, and from 120 days to 180 days in case the Commissioner subjects the application to an audit.
The Cabinet Secretary for Finance empowered to waive penalties and interests arising from error, delay, iTax malfunction or erroneous registration.
Requirement for the Commissioner to provide reasons when amending assessments.
Penalty for failure to withhold tax exempts the withholder from paying the principal WHT, if the withholdee has paid and accounted for the full principal tax. The withholder is however still liable to pay penalties and interests arising from the same.
Exclusion of weekends and public holidays from the computation of time for lodging objections and appeals.