📘 Introduction
The Finance Bill 2025 was published as part of the government’s effort to align Kenya’s fiscal policies with its economic transformation agenda. The Bill proposes a range of tax reforms and policy measures aimed at expanding the tax base, improving compliance, and promoting transparency within Kenya’s tax system.
Unlike previous Finance Bills that focused on introducing new taxes, the 2025 proposals are largely centered on enhancing efficiency, modernizing administration, and clarifying ambiguous provisions. These proposed changes affect individual taxpayers, corporations, digital businesses, and investors operating both locally and internationally.
The proposed effective date for most provisions is 1 July 2025, while some measures, especially those involving transfer pricing and revenue allocation, will take effect on 1 January 2026. Below are the key highlights of the Finance Bill 2025:
🏦 Corporate Tax & Business Reforms
- 5-Year Limit on Tax Loss Carryforwards: Businesses will now only be able to carry forward tax losses for up to five years, down from indefinite periods.
- Expanded Definition of Royalties: Now includes recurring payments for software, cloud-based solutions, and other digital content—impacting many tech and service-based companies.
- Advance Pricing Agreements (APAs) Introduced: Multinational enterprises can enter APAs with KRA to pre-agree on transfer pricing terms. This provision takes effect from 1 January 2026.
- Expanded Significant Economic Presence Tax (SEPT): Applies to more non-resident companies offering digital goods and services in Kenya, regardless of physical presence or revenue threshold.
- Clarified Due Date for Top-Up Tax: Top-up tax for minimum tax purposes will now be payable within four months after the financial year-end.
- Public Sports Infrastructure Deductible: Expenses related to the construction of public sports facilities are now deductible. However, general sports sponsorship deductions are disallowed.
👥 Individual & Employment Income Tax Changes
- Increased Non-Taxable Per Diem: Tax-free daily allowance has been raised from KES 2,000 to KES 10,000, easing tax obligations for employees on official assignments.
- Mortgage Interest Relief Expanded: Includes home construction loans in addition to mortgage payments, supporting access to housing finance.
- Gratuity Payments Fully Tax-Exempt: Retirement gratuity, whether from public service or private schemes, is now fully exempt from income tax.
- Fringe Benefit Tax Standardized: Set at 30%, aligning it with the standard corporate income tax rate.
- Mandatory PAYE Relief Application by Employers: Employers are now obligated to apply all available tax reliefs at the payroll level to reduce the burden of refund claims on employees.
💻 Digital Economy & Asset Taxation
- Reduced Digital Asset Tax: The tax on gains from digital assets (such as cryptocurrencies, tokens, and NFTs) has been reduced from 3% to 1.5%.
- Wider Coverage for Non-Resident Digital Services: SEPT now clearly includes services delivered online by non-residents, ensuring fair taxation of the digital economy.
🧾 Tax Administration & Compliance Enhancements
- Justification for Tax Assessments Mandatory: KRA must now provide written reasons when making or amending assessments—improving transparency and fairness.
- Final Withholding Tax Payments Excluded from e-TIMS: Payments subject to final withholding tax (e.g., dividends, interest) are now exempt from the electronic invoicing system.
- Stamp Duty Exemption on KRA-Held Properties: Properties held as tax security by KRA are now exempt from stamp duty.
- New Withholding Tax Measures Introduced:
- On sales of scrap materials
- On payments made by public entities
- On income earned by non-resident ship and aircraft charterers
🌍 Investment Incentives & Capital Allowance Adjustments
- Incentives for Nairobi International Financial Centre (NIFC):
- Corporate income tax at 15% for the first 10 years, and 20% for the next 10 years
- Companies must invest KES 3 billion locally within 3 years
- Kenyan citizens must hold senior management positions
- Removal of Preferential Capital Allowances:
- 100% capital allowances for hotel buildings, manufacturing machinery, and SEZs have been repealed.
- Developers in the mass housing sector and vehicle assembly industry lose the previous 15% corporate tax rate, reverting to 30%.
📅 Effective Dates Summary
| Effective Date | Affected Provisions |
|---|---|
| 1 July 2025 | Most tax proposals including digital asset tax changes |
| 1 January 2026 | Introduction of Advance Pricing Agreements (APAs), IDF revenue changes |
✅ Summary
The Finance Bill 2025 demonstrates the government’s commitment to reforming Kenya’s tax regime by emphasizing clarity, efficiency, and equity. It seeks to modernize tax laws to match the realities of today’s digital and globalized economy, while ensuring that all income—local or foreign, traditional or digital—is brought into the tax net.
As these changes take shape, businesses and individuals are encouraged to review their tax strategies, update compliance mechanisms, and seek expert advice where needed.
🔔 Stay Informed
We provide timely updates, expert analysis, and simplified explanations to help you make confident decisions in a rapidly evolving regulatory environment. Whether you’re a business, investor, or taxpayer, RKCO East Africa Consulting is your reliable partner in navigating compliance changes.
📧 Email: info@rkcoeastafricaconsulting.co.ke
📞 Phone: +254 715 503 403/+254 751 740 909
🌐 Website: www.rkcoeastafricaconsulting.co.ke
