The Finance Bill 2025 is projected to raise Sh559.9 billion—or 2.9 per cent of the GDP—through sweeping tax reforms and administrative adjustments.
Here are the 12 major changes every taxpayer, business, and investor should know:
1. New, simplified implementation dates
The Bill does away with the previous three-tiered implementation calendar.
Now, only two dates matter:
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▪ 1st January 2025 – Clauses 12 and 56 take effect.
▪ 1st July 2025 – All other provisions commence.
There are no changes scheduled for 1st September. There are no changes scheduled for 1st September.
2. Gratuity now fully tax-exempt
The Bill equalises treatment of retirement benefits by exempting gratuity from tax:
"The Finance Bill, 2025, clears the air by making gratuity payments tax-exempt, ensuring that all retirement benefits, including pension and gratuity, are treated equally under the new Exempt-Exempt-Exempt (EEE) regime, empowering employees to keep more of their hard-earned money for a secure future."
3. Private sector per diem raised to Sh10,000
To align with public sector allowances, the tax-free per diem for private sector employees will increase:
"The Bill proposes to increase the tax-free per diem limit for private sector employees from Sh2,000 to Sh10,000 per month for out-of-town work."
4. Major VAT shake-up and reclassification
Several zero-rated goods will move to VAT-exempt status:
▪ Solar and lithium-ion batteries
▪ Electric bicycles
▪ Raw materials for animal feeds and pharmaceuticals
▪ Locally assembled mobile phones
▪ Sugar transportation from farms to mills
This move could raise consumer prices and production costs.
5. Crackdown on VAT misuse
Taxpayers will now be taxed if exempt or zero-rated goods are used for purposes other than originally intended:
"The Bill proposes tax on goods or services that were initially exempt or zero-rated if later used inconsistently with their intended purpose."
6. Expanded tax enforcement powers risking data privacy
Controversially, the Bill opens more access to personal and corporate data in the name of tax enforcement:
"The Bill opens the backdoor to unprecedented data access… reviving last year's controversial push and blurring the line between tax enforcement and data privacy, leaving businesses and individuals exposed."
7. Penalty waivers for system errors—but only from 2026
The Cabinet Secretary regains the authority to waive penalties for system-related tax issues, but implementation is delayed:
"This extended wait raises concerns about the trustworthiness of the system, as taxpayers continue to bear the burden of issues outside their control."
8. Construction sector relief through levy cuts
To support the struggling building sector, which contracted by 2.0 per cent in Q3 2024, the Export Investment Promotion Levy will drop from 17.5 per cent to 10 per cent on materials like iron and steel rods:
"A proposal to cut the Export Investment Promotion Levy from 17.5 per cent to 10 per cent on construction-related products like bars and rods of iron or non-alloy steel aims to revitalise the struggling construction sector."
9. Aircraft maintenance parts exempted from import levies
The aviation sector gets a boost as parts for helicopters, aircraft, and spacecraft are exempted from both the Import Declaration Fee and the Railway Development Levy:
"To support the growth of Kenya's aircraft maintenance sector, the Finance Bill 2025 proposes to exempt all parts of helicopters, aircraft, and spacecraft from the Import Declaration Fee (IDF) and Railway Development Levy (RDL)."
10. Advance Pricing Agreements (APAs) return
Multinational corporations can now enter Advance Pricing Agreements valid for five years to gain certainty over cross-border transactions:
"Advance Pricing Agreements (APAs) are making a return… With this move in the transfer pricing space, there is hope for increased certainty regarding the tax outcomes of international transactions."
11. Minimum Top-Up Tax payment deadline clarified
The Bill clarifies that this tax must be paid by the end of the fourth month after a company’s financial year closes, resolving a gap left by previous legislation.
12. Tax refund and audit timelines extended
Refund processing time will stretch from 90 to 120 days, and audit windows from 120 to 180 days—posing liquidity challenges for affected businesses:
"These extended timelines could significantly impact business cash flow and financial planning, particularly for companies that rely on timely tax refunds for operational expenses or investment purposes."
Bottom line:
The Finance Bill 2025 shifts focus from new taxes to tightening the system—streamlining timelines, reducing loopholes, and incentivising targeted sectors—while attempting to strike a balance between enforcement and fairness.
Whether that balance is achieved remains to be seen.
