On 30 April 2025, the Cabinet Secretary for the National Treasury introduced the Finance Bill, 2025 to Parliament. If enacted by the end of June, most provisions will take effect on 1 July 2025, subject to public and stakeholder consultation followed by parliamentary debate.
The Bill amends key tax statutes, including the Income Tax Act (ITA), VAT Act (2013), Excise Duty Act, Tax Procedures Act (2015), Miscellaneous Fees and Levies Act, and makes miscellaneous changes to the Stamp Duty Act. Below is a summary of the principal proposals.
1. Corporate and Business Tax Changes
1.1 Retirement Funds
- “Individual retirement fund”: The requirement to register with the Kenya Revenue Authority (KRA) is removed, aligning private retirement plans with other registered funds.
1.2 Royalties and Related Parties
- Expanded “royalty” definition: Now covers software distribution arrangements where recurring payments are made via a distributor.
- Harmonized “related person” rule: Unifies the definition across the ITA, focusing on direct or indirect participation in management, control, or capital.
1.3 Digital and International Tax Measures
- Wider Significant Economic Presence Tax (SEPT): Applies to any business income from Kenya earned via the internet, removing the KES 5 million turnover exemption for nonresidents.
- Advance Pricing Agreements (APAs): Introduces a five-year APA framework with KRA to reduce transfer pricing disputes (effective 1 January 2026).
- Country-by-Country Reporting: Removes the exemption for multinational enterprises under mutual information-exchange agreements, requiring all constituent entities to file.
1.4 Losses, Top-Up Tax, and Deductions
- Five-year cap on carryforward losses: Tax losses can no longer be carried forward indefinitely, creating transition concerns for historical losses.
- Minimum top-up tax deadline: Due by the fourth month after year-end, aligning with balance-of-tax payments.
- Public sports facilities: Construction costs become deductible; sports sponsorship expenses lose deductibility without Cabinet Secretary approval.
1.5 Insurance, Shipping, and Exemptions
- Life insurance funds: Terminology shifts from “life fund” to “life insurance fund” for long-term insurers.
- Nonresident shipping profits: Gains by foreign ship owners or charterers move from self-assessment to a withholding tax regime.
- Exemption processing: Income tax exemption applications timeline extends from 60 to 90 days.
- SEZ property gains: Exemption limited to transfers by licensed developers, enterprises, or operators.
1.6 Nairobi International Financial Centre (NIFC) Incentives
- Dividend tax exemption: For NIFC‑certified firms reinvesting at least KES 250 million locally, provided dividends are paid.
- Reduced CIT rates: 15% for the first 10 years, 20% thereafter, subject to investment and local employment thresholds.
- Start-up regime: 15% CIT for three years, 20% for the next four, though start-ups may lack early profits to benefit.
1.7 Repeals and Rationalizations
- Accelerated allowances: 100% capital allowances for hotels, manufacturers, and SEZ investments revert to standard rates.
- Housing and vehicle assembly concessions: 15% CIT preferential rates for large residential projects and local vehicle assemblers are removed.
- Final withholding tax clarity: 5% on dividends and 15% on interest explicitly remain final taxes.
- Digital asset levy: Rate cuts from 3% to 1.5% on transfers or exchanges of cryptocurrencies, tokens, and NFTs.
2. Personal Tax Amendments
- Per‑diem increase: Tax‑free daily allowances rise from KES 2,000 to KES 10,000 for official travel.
- Mortgage interest: Deductible when incurred on mortgages for constructing residential premises.
- Retirement withdrawals: Exemptions on lump-sum or periodic withdrawals from registered schemes are repealed, aligning with existing schedule rules.
- Gratuity exemption: All gratuity payments (public or private) become income‑tax exempt.
- Fringe benefits: A 30% withholding rate on taxable fringe benefits is restored.
3. Tax Procedures Act Updates
- E‑invoicing exemptions: Final‑tax withholding payments, including nonresident services, qualifying dividends/interest, imports, and airline tickets, are excluded.
- Assessment transparency: KRA must provide reasons for amended assessments.
- Withholding penalties: Relief if the recipient pays the principal tax, eliminating double penalties.
- Property security: Stamp‑duty exemption on KRA security filings and property transfers in enforcement.
- Nonresident collections: Expanded KRA powers to pursue amounts held by third parties on behalf of nonresidents.
- Refund timelines: Extended from 90 to 120 days; audit window lengthened from 120 to 180 days.
- Objection deadlines: Clarifies timing begins when late objections are filed; weekends and holidays re‑included in time limits.
- System error waivers: CS may waive penalties and interest arising from electronic system faults (effective 1 January 2026).
4. VAT Act Revisions
- Digital services: VAT on nonresident suppliers now covers broadcasting, internet, radio, and television services.
- Refund periods: General claims shorten from 24 to 12 months; bad‑debt refunds from three to two years, with allowances for offsetting future VAT.
- Universal invoicing: All registered persons must issue tax invoices for taxable and exempt supplies.
- Conditional VAT clawback: Supplies initially exempt or zero‑rated lose status if misused or disposed of improperly.
4.1 Product‑Level Rate Changes
From Exempt → Taxable (16%): Medicaments, aircraft parts, NGO project inputs, large‑scale tourism and hospital construction goods, affordable housing materials, geothermal/oil/mining inputs, solar/wind energy equipment, and media storage devices.
From Taxable → Exempt: Tea/coffee packaging, pharmaceutical raw materials (zero‑rated), animal feeds, sugarcane transport, locally assembled mobile phones, motorcycles, electric bicycles/buses, and bioethanol vapour stoves.
5. Excise Duty Adjustments
- Digital lenders: Definition widened to cover fintech and peer‑to‑peer platforms; banks and Saccos remain excluded.
- Digital marketplace levy: 20% excise on nonresident services delivered via online platforms.
- Goods classification: Aligns with EAC Common External Tariffs and General Interpretation Rules.
- Licensing timeframe: KRA must decide excise license applications within 14 days.
- Rate updates: Coal remains 2.5%; various imported plastics and paper products see higher per‑kg minimums rather than customs‑value bases; high‑strength spirits rise to KES 500 per litre.
6. Miscellaneous Fees, Levies, and Stamp Duty
- Import Declaration Fee: Exemption narrowed to large aircraft and specific parts.
- Railway Levy: Re‑exempts only major aircraft, removing others from relief.
- Export/Investment promotion levies: Steel semi‑manufactures see rates cut from 17.5% to 10%.
- Group reorganisations: Intracompany property transfers to shareholders—proportional to shareholding—become stamp‑duty exempt under certain conditions.