The Kenyan National Treasury has introduced the Finance Bill 2025, which proposes sweeping changes to the country’s tax regime, scheduled to come into effect on July 1, 2025. The Bill, introduced in Parliament by the Cabinet Secretary on April 30, 2025, aims to improve compliance, broaden the tax base and align with global standards by amending key tax laws, including the Income Tax Act, VAT Act and Excise Tax Act.
Highlights of the Bill
- Business and Corporate Tax Reforms: The Bill introduces a five-year limit on tax loss carryforwards, expands the definition of copyright to include software distribution and expands the scope of the Significant Economic Presence Levy (SEPT) to all digital business activities. Advance Pricing Agreements (APAs) will be introduced to manage transfer pricing risks and new timelines for filing minimum surtaxes will also be proposed.
- Changes to Digital and Investment Taxation: Tax on digital assets will be halved from 3% to 1.5%. Meanwhile, the Bill removes tax incentives for the hotel, manufacturing, residential and local vehicle assembly sectors. A number of incentives have been introduced for firms certified by the Nairobi International Financial Centre, such as reduced corporate tax rates based on reinvestment levels.
- VAT and Indirect Taxes: The VAT net will be expanded to cover digital services such as internet and broadcasting provided by non-resident suppliers. The Bill shortens VAT refund application periods and improves VAT claim processes for bad debts.
- Personal Income Tax Amendments: Proposals include increasing tax-free daily allowances from KES 2,000 to KES 10,000 and allowing deductions for mortgage interest for home construction. Withdrawals from retirement plans will now be taxed in full unless they qualify for certain exemptions.
- Tax Procedures and Administration: Several changes aim to increase transparency and efficiency. These include mandatory reasons for amended tax assessments, exemptions for taxpayers when tax is paid in full by recipients, and extended deadlines for processing returns and appeals.
The 2025 Finance Bill will be submitted to public consultation before being tabled in Parliament and likely to come into force by the end of June. If enacted, most measures will come into effect from July 1, while others, such as APAs and some administrative changes, will come into effect from January 2026.