The Finance Bill, 2025 (the Bill, passed by the National Assembly on June 19, was signed into law by the President on Thursday.
Annually, with the passage of a Finance Bill, taxpayers typically brace for a decrease in disposable income due to new taxes, levies and increased compliance costs.
Perhaps this is why Will Rogers humorously quipped: “The only difference between death and taxes is that death does not worsen every time Congress meets (after every new Finance Act).” In a rare twist, the 2025 Act may prove an exception.
Framed around a “tax-free” budget, the Bill uniquely refrained from introducing any new tax types or increasing tax rates, focusing instead on enhancements and targeted reforms to the existing tax framework.
Consequently, the expected additional revenue from the Bill is Sh24 billion (revised from the initial estimate of Sh30 billion), a sharp contrast to the Sh344 billion and Sh211 billion projected for the 2024 and 2023 Finance Bills, respectively.
This reflects a shift in policy focus and the government’s attempt to balance revenue mobilisation, economic growth and public concerns following the contentious Finance Bill, 2024.
Streamlining its implementation, the Bill adopts a cohesive rollout, with nearly all provisions taking effect on July 1, 2025, save for Advance Pricing Agreements (APAs) and penalty waivers for electronic tax errors, postponed to January 1, 2026.
This contrasts with past Acts’ staggered timelines, fostering clearer compliance and less confusion. It reduces the need for businesses to repeatedly update systems or retrain staff, as common with past complex schedules. It also signals responsiveness to public call for simplicity and aligns with international tax administration standards, that favour clear easy-to-follow start dates to support compliance.
For the Kenya Revenue Authority (KRA), a single effective date simplifies enforcement and monitoring processes rather than managing multiple timelines which strains KRA’s resources.
The clear timelines align with the fiscal year, giving businesses – especially in sectors like manufacturing – a predictable framework to adjust pricing, budgets and operations. This will partly foster stability, critical amid global trade disruptions like USA tariffs affecting Kenyan exports.
Emphasising strong public involvement, the 2025 Bill saw the Finance and National Planning Committee collect views countywide, while pushing for clear revenue projections and public education.
While public input was sought for earlier Bills, the 2025 process was more proactive, aiming to avoid the misinformation that plagued the 2024 Bill. By prioritising transparency, it set a new standard for inclusive fiscal policymaking in Kenya.
For employees, the Bill delivers meaningful tax reliefs by mandating employers to apply deductions for social health insurance, housing levy, and mortgage relief before calculating Pay-as-You- Earn (Paye), increasing take-home pay. It further raises the tax-free per-diem limit from Sh2,000 to Sh10,000, a significant step beyond the 2024 pension contribution rise from Sh 20,000 to Sh30,000.
Introduction of APAs will allow multinationals operating in Kenya to agree on transfer pricing methodologies with KRA for up to five years, a first in Kenya’s tax history.
Mirroring global tax norms, this will clarify complex transfer pricing issues, reduce disputes, and position Kenya as a forward-looking tax jurisdiction.
To boost investment, the Bill incentivises Nairobi International Financial Centre-certified companies with a 15 percent corporate tax rate for 10 years, 20 percent thereafter, and dividend tax exemptions for Sh250 million reinvested locally, reinforcing Kenya’s role as a financial hub for economic growth.
Conversely, the Bill’s cap on corporate tax loss carry-forwards at five years, replacing the indefinite period allowed previously will significantly impact capital-intensive sectors like energy, manufacturing, and telecoms.
Notably, the Finance Committee blocked the contentious proposal for KRA’s unrestricted access to personal data, citing privacy violations under Article 31(c) and (d) of the Constitution, as Tax Procedures Act’s Section 60 already allows data access via judicial warrants.
Though taxpayers expected greater reliefs, such as reduced VAT rate, lower Paye rates, and setting corporate tax rate at 28 percent, the Bill provides a promising start. Subsequent Finance Bills should build on this foundation to further the gains.
The writer is a Transfer Pricing Senior Manager at RSM (Eastern Africa) Consulting Ltd ([email protected]). The views are those of the author and do not necessarily reflect the view and opinion of RSM
