Every year, the government updates tax laws to match the budget plan. The Finance Bill 2025 is that update for the new fiscal year. It tweaks how different taxes work, that is income tax (what people and companies pay on earnings), VAT (the tax on most things you buy), excise duty (extra taxes on specific items) and a few other rules. Most changes are set to kick in on 1 July 2025, with a couple of specialized rules starting 1 January 2026.

Why this Bill exists

Kenya needs to fund schools, hospitals, roads and other public services. Tax laws determine where money comes from, who pays and when. The 2025 Bill tries to:

• Tighten and simplify rules (so KRA can collect more reliably and taxpayers know what to do).
• Align with the digital economy¹ (because money now moves online as much as on the ground).
• Tweak incentives (some are added, some are removed. This is to  aim for growth without unfair loopholes).
• Clarify timelines and rights (fewer disputes, faster refunds, clearer processes).

What changes for individuals?

• Daily travel allowances get a more realistic cap

If your employer pays you a daily allowance when you travel for work, the tax-free limit jumps from KSh 2,000 to KSh 10,000 per day. That better reflects actual costs like meals and accommodation. Anything above the cap is still taxable, but the higher ceiling means fewer people get taxed on basic travel costs.

• Mortgage interest relief widens

Previously, you could get relief on interest for a home purchase; now, the Bill makes it clear that interest for constructing your home also qualifies. If you’re building rather than buying, that’s good news for your tax bill.

• PAYE fairness: deductions before tax

Employers are told to apply your deductions and reliefs before calculating PAYE. In short, your tax should be computed after legitimate reliefs (like mortgage interest) are factored in. This helps in reducing over-deductions and end-of-year adjustments.

• Social Health Insurance contributions clarified

Payments into and out of the Social Health Insurance Fund get explicit tax treatment in the exemptions schedule, removing doubt about how these contributions are handled.

What changes for business owners?

• How long can you carry tax losses? Now, FIVE YEARS

The Bill caps the period to carry forward losses to five succeeding years and removes the Cabinet Secretary’s power to extend beyond that. Translation: if your business makes a loss, you’ll have five years to use those losses to reduce future taxable profits. After that, any unused losses expire. This pushes companies to become profitable faster and avoid “parking” losses indefinitely.

•  Faster, clearer tax refunds—and stricter clocks

For VAT, the Bill shortens some timelines: you must apply for a refund within 12 months of when the tax became due (down from 24).
These changes aim to unclog refund backlogs while forcing both sides, taxpayers and KRA. 

• Relief for tech glitches

If penalties or interest were triggered because of e-timing system errors (e.g., an e-tax system lag, duplicate penalties due to a glitch), the Cabinet Secretary may waive them on KRA’s recommendation. That’s a good idea for real-world system hiccups.

•  Withholding on public procurement & scrap

When public entities buy goods, the Bill formalizes withholding tax on payments—5% for non-residents and 0.5% for residents, tightening compliance across government supply chains.

• Significant Economic Presence (SEP) goes broader

Kenya’s SEP rule, taxing non-resident companies that earn from Kenyan users without a local office—now applies to activities over the internet or any electronic network, not just a “digital marketplace.” A previous small-business threshold is also removed. If you make money in Kenya online, Kenya wants its share. (Your thoughts regarding this?)

• Advance Pricing Agreements (APAs) arrive (from 2026)

For multinationals, you can agree in advance with KRA on how to price related-party transactions (transfer pricing) via an APA. It can actually last up to five consecutive years and reduces disputes later. This section goes live 1 January 2026.

what gets pricier vs. what stays friendlier

Here’s the key concept:

 

• Zero-rated goods/services = taxed at 0%, and businesses can claim input VAT (so end prices stay lower).

• Exempt goods/services = no VAT charged, but businesses cannot claim input VAT (so their costs go up, and they might pass that on to you).

The Bill moves some items into the VAT exemption list (instead of zero-rating). Examples include:

 

• • Inputs for pharmaceutical manufacturers.

• • Inputs for animal feeds.

• • Transportation of sugarcane.

• • Locally assembled mobile phones.

What this means: These sectors don’t charge VAT to the final buyer, but they can’t claim input VAT either, so production costs may rise and could show up in the final price, depending on margins and competition. It’s a policy trade-off: encourage uptake (by keeping VAT off the receipt) while limiting large VAT refunds.

 

Excise duty, fees & levies: the fine print that still matters

Excise

Excise focuses on specific products (think alcohol, fuel, some services). The Bill mostly does clean-ups and realignments to schedules and definitions rather than headline rate hikes. If you’re in a sector that deals with excisable goods or services, double-check the amended lists and codes.

Export & Investment Promotion Levy (EIPL) and other levies

To support local steel users and projects, the Bill reduces EIPL on certain steel products from 17.5% to 10%. That can lower costs for construction and manufacturing that rely on those inputs.

 

Capital markets, shipping and special hubs

• Nairobi International Financial Centre (NIFC): Dividends paid by an NIFC-certified company may be exempt if the company reinvests at least KSh 250 million in Kenya that year designed to keep serious capital onshore.

• • Capital gains on listed securities: The Bill clarifies that gains on listed securities (traded on a licensed exchange) are not subject to CGT under section 3(2)(f) continuing support for capital markets liquidity.

• • Shipping: Non-resident ship owners/charterers supplying services into Kenya face a 2.5% withholding on gross amounts tightening tax on cross-border shipping revenue.

 

Stamp Duty: business reorganizations get a break

If a company reorganizes internally (for example, moving assets to a subsidiary or distributing shares to existing shareholders pro-rata), the stamp duty on those transfers can be exempt as long as it’s a genuine internal shuffle, not a disguised sale. This eases restructuring for groups trying to right-size or raise capital.

 

Admin & compliance: fewer grey areas, clearer clocks

• • Objections and appeals: When KRA allows a late objection, the clock for making an objection decision starts the day the valid objection is lodged. That gives both sides a clean, predictable timeline.

• • Penalties & notices: The Bill reinforces that penalties kick in when you’re officially notified (with at least 30 days to pay), and KRA must choose one penalty where multiple could apply for the same slip. That’s more predictable for taxpayers.

 

“Will prices go up?”—the real-world impact

• Phones, batteries, e-bikes, e-buses, stoves: Because many of these are exempt (not zero-rated), producers can’t reclaim VAT they pay on inputs. Some of that cost may trickle into retail prices though competition and scale could absorb part of it. The government’s likely goal: encourage uptake by not charging VAT to buyers while limiting large VAT refunds to suppliers.

 

• Construction & manufacturing: Lower levies on steel inputs can take the edge off project costs. On the other hand, loss carry-forward capped at 5 years raises the urgency for new ventures to turn profitable.

 

• Digital businesses and creators: The rules keep pressure on marketplaces, platforms and crypto trades to comply in Kenya. If you’re building in Web3, fintech or creator economy, plan for withholding, SEP coverage and DAT.

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What’s the bigger story?

Kenya is trying to balance revenue needs with growth in manufacturing, capital markets and digital services.

Two themes stand out:

• Formalizing the digital economy
  Expanding SEP and keeping DAT in place says: if you earn from Kenyan users even from abroad, you’re in scope. That’s consistent with global trends to tax where value is created.
• Tightening administrative nuts and bolts
  Clearer refund timelines, objection clocks and penalty rules reduce friction and uncertainty. Waivers for e-system errors admit that technology isn’t perfect and shouldn’t punish honest taxpayers.

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” I would like to know how you feel about this information. Is the finance bill 2025 better or worse for your business?”