In June 2024, Kenya found itself in a fiscal crisis of confidence. For the first time in recent memory, the President declined to assent to the Finance Bill — not with minor reservations, but with a sweeping rejection of all clauses.
The move, dramatic and unprecedented, forced a national reckoning: had we taken the annual budget-making process too far from the people it is meant to serve?
Now, as the 2025 Finance Bill is undergoing public scrutiny, we are presented with a critical test: have we learnt from last year’s missteps — or are we risking a repeat performance, with the same ingredients of opacity, and implementation gaps?
Three areas in particular warrant close attention. Not only because of what they suggest about the content of the 2025 Finance Bill, but also because of what they signal about the broader trajectory of Kenya’s public finance governance.
1. Tax base expansion without taxpayer buy-in
One of the most contentious features of the 2024 Finance Bill was the attempt to expand the tax base rapidly — through, for instance, digital content taxation and changes to VAT exemptions.
While these measures were fiscally logical, they lacked political legitimacy and public understanding. The result was widespread protest, culminating in the unprecedented decision by the President to send the Bill back to Parliament.
The 2025 Finance Bill has provisions that will have financial impact on businesses and individuals. These include the repeal of investment deduction incentives, restriction of tax loss carry-forward to five years, elimination of rebates for affordable housing developers and motor vehicle assemblers, and the broadening of the Significant Economic Presence Tax, to cover all non-residents regardless of turnover.
Although there are some welcome relief measures, such as the reduction of the digital asset tax rate, exemption of gratuity payments and VAT exemptions on tea and coffee packaging, these are outweighed by proposals that expand the tax base and remove existing incentives, effectively increasing the tax liability for many taxpayers.
But beyond the individual provisions, a more pressing issue has emerged: the growing cost of compliance. Increasingly, the burden of tax administration is being shifted to consumers and small businesses through complex reporting, automated suspensions, and procedural barriers.
Procedural mechanisms like the VAT Special Table have resulted in businesses being flagged and effectively shut out of the tax system, often due to digital triggers and sometimes with no fault of the taxpayer.
The result is increased systemic pressure on businesses already operating within tight margins. For ordinary Kenyans, particularly those in the informal economy, the cumulative effect is the same: more hurdles to undertake business, greater uncertainty and a growing perception that the tax system is not designed to work for them.
When compliance becomes too costly or complicated, the risk, moves beyond tax avoidance and towards the risk of a parallel informal economy.
These trends risk undermining both trust and participation. Without a more inclusive sector engagement process and a proportional approach that reflects the lived realities of taxpayers, tax expansion may feel like overreach.
The lesson from 2024 is clear: reform without carrying the public along will meet resistance ahead. A participatory, transparent and phased approach is not merely desirable — it is essential.
2. Incentives need clear and concise execution plans
Incentives have long been a tool to attract investment into nascent sectors of our economy. Among the more notable elements of the 2025 Finance Bill is a renewed focus on positioning Nairobi as a competitive financial hub, through the Nairobi International Financial Centre (NIFC).
New provisions grant preferential tax treatment to companies certified by the NIFC Authority, including a reduced corporate income tax rate and capital gains exemptions tied to minimum investment thresholds and reinvestment conditions.
This ambition is aligned with Kenya’s broader investment promotion strategy. However, as with previous years, the challenge lies not in the concept, but in the delivery. Incentives introduced in the past— including sector-specific deductions and adjustments to the Investment Promotion Act — were well-intentioned but ultimately struggled due to delayed implementation, unclear eligibility rules, and limited coordination between relevant agencies.
It will be important for the NIFC to avoid this pattern. Its success depends on three things:
Clarity: The tax and regulatory advantages of NIFC certification must be easily distinguishable from those offered under existing frameworks, such as Special Economic Zones or Export Processing Zones.
Coherence: The roles of institutions — from the KRA and CBK to the NIFC Authority — must be aligned to create a seamless regulatory environment.
Credibility: Investors will only respond to these incentives if they believe the government can deliver what has been promised. That belief hinges on predictability, efficiency and transparency.
An international financial centre is not new to Africa — and it is not, by itself, transformative. Its triumph depends on whether Kenya can execute it in a way that builds trust, complements existing strategies, and avoids fragmentation. That requires a deliberate, whole-of-government effort, not just favourable tax provisions in the tax statutes.
3. Austerity without structural reform
After the 2024 Finance Bill was rejected, the government signalled that austerity would be used to bridge the resulting Sh346 billion revenue gap. This gap resulted in delayed payments to contractors, delayed VAT refunds, and enhanced borrowings. This response, while politically necessary, did little to address the deeper structural issues that continue to undermine Kenya’s fiscal stability.
The 2025 Finance Bill is based on more measured revenue ambitions on the part of the government. Yet, the underlying drivers of pressure remain high public sector wage bills, mounting debt service obligations, as well as fragmented and duplicated functions in Kenya’s administrative systems. Without structural reform, any gains made through new taxes or spending cuts will bear no fruit.
The areas in need of reform include cutting government excesses and unnecessary spending, strengthening the tax appeals process, ensuring compliance with the decisions made by the courts of the land, and better integration between institutions in government, particularly the central government and the devolved counties.
Budget credibility requires more than fiscal restraint - without strengthening the mechanisms that underpin revenue collection, expenditure control and transparency, even the most technically sound provisions in the Finance Bill risk becoming a missed opportunity.
Tax changes through the annual finance bills are not just legislative enactments, they are also economic signals on the direction the country is heading. They communicate Kenya’s development priorities, its policy direction, and its credibility — to citizens, investors, and development partners alike.
In 2024, after many years of increased taxes and levies, seemingly without any positive impact on the lives of citizens – particularly those in the lower economic strata - public sentiment and mood reached a crescendo resulting in the derailment of the 2024 Finance Bill. The 2025 Finance Bill offers a second chance.
But a second chance is only meaningful if it is used to correct a course — not simply repackage the same strategies with new language.
The turning point for 2025 will depend on whether Parliament and policymakers will carefully consider meaningful proposals that have impact on the economy as a whole, and listen to the citizens of Kenya who will put forward their thoughts during the public participation process. The window to act is narrow. But the lessons — from 2024 and before — are still within reach.
Daniel Ngumy is a managing partner at ALN Kenya and a tax, trade and public finance expert, and Rutendo Nyaku is an expert on socio-economic policies in Africa.
