The government has refrained from aggressive tax-raising measures in the Finance Bill, 2025 and is instead leaning on sealing revenue leakages as it looks to avoid a repeat of the youth-led protests that met last year’s tax hikes.
A draft of the Finance Bill, which was tabled in Parliament on Wednesday, shows a departure from the popular measures such as higher excise taxes on products such as alcohol, cigarettes, and confectionery, and duty on imported goods.
The William Ruto administration is instead looking to reduce the government’s tax expenditure (foregone taxes) by shifting a raft of manufacturing inputs from value added tax (VAT) zero-rated status to exempt status.
Manufacturers are able to claim VAT refunds from the government on inputs used to produce zero-rated products. On exempt goods, they are unable to do so, and therefore this cost is usually passed on to the final consumer.
The products targeted under the VAT change include locally assembled mobile phones, animal feed, raw materials for pharmaceutical products, solar and lithium batteries, and electric bicycles.
“Cabinet approved the Finance Bill, 2025, which focuses primarily on closing loopholes and enhancing efficiency, including addressing loopholes related to tax expenditures that have historically been exploited to siphon funds from public coffers, such as through inflated tax refund claims,” a Cabinet brief ahead of the tabling of the Finance Bill 2025 said.
“Importantly, the Bill seeks to minimise tax-raising measures. Instead, it aims to enhance tax administration efficiency through a new legislative framework. Key provisions include streamlining tax refund processes, sealing legal gaps that delay revenue collection, and reducing tax disputes by amending Tax Acts.”
The Treasury has also sought to strengthen the ability of the Kenya Revenue Authority (KRA) to catch tax cheats with a proposal to amend the Tax Procedures Act, removing a clause that bars the taxman from integrating its system with those of businesses. This effectively opening a window for the KRA to access payments data on businesses.
The KRA is also integrating its iTax system with public sector payment platforms —the Integrated Financial Management System (Ifmis), Government Human Resource Management Information System (GHRIS), and the Central Bank System— in a bid to weed out tax cheats among public sector suppliers and government employees.
The Finance Bill, 2025 is, however, open to amendments before the publication of the final draft, meaning that there could still be some new tax measures introduced in the coming days.
The draft Bill and the Cabinet brief were also silent on the additional revenue that the Bill expects to raise through the sealing of leakages or exemptions.
“It is a draft document that was released by the National Treasury. It is undergoing review and some of the proposals in it will be in the final document that will be published by next week,” said Molo MP Kuria Kimani, who chairs the National Assembly’s Finance and National Planning Committee.
Last year’s Finance Bill introduced major taxation measures targeting more than Sh360 billion in additional revenue, but it was later withdrawn after days of protests across the country in June that saw protestors storm Parliament shortly after MPs passed the Bill.
Some of the withdrawn clauses in the Bill were later reintroduced and passed through the Tax Laws (Amendment) Act 2024 in December, as the government sought to recover the revenue ceded by the withdrawal of the Finance Bill amid pressure to meet conditional revenue targets under its funding programmes with the International Monetary Fund (IMF) and the World Bank.
The lower revenue projection and collection performance further expanded the country’s fiscal deficit, forcing the Treasury to adjust its borrowing targets upwards.
The December amendments included higher excises on alcoholic beverages, tobacco products, imported sugar, electric transformers, ceramic tiles, and wash basins. It also raised excise on betting and gaming winnings from 12.5 percent to 15 percent.
The Act also introduced the Significant Economic Presence (SEP) Tax which replaced the Digital Service Tax (DST) and on VAT, it moved fertiliser and agricultural pest control products from zero-rated to VAT-exempt.
In addition to the changes in the tax laws, the government has increasingly sought to raise revenue from other measures including the upward adjustment of levies on products such as fuel and government services.
In July 2024, the Ministry of Transport and the Energy and Petroleum Regulatory Authority (Epra) raised the Road Maintenance Levy from Sh18 to Sh25 per litre, seeking an additional Sh30 billion annually to help pay pending bills owed to roads contractors, and also maintain an expanded road network.
The government has also signalled its intention to bring back tolling on selected key highways as a way of raising additional billions to fund maintenance.
Levies introduced in the recent past include the Housing Levy, which is charged at 1.5 percent of gross pay, matched by an employer, and an enhanced, uncapped contribution of 2.75 percent of earnings to the Social Health Insurance Fund, which was previously capped at Sh1,700 per month per contributor.
