In a sweeping overhaul that has rattled business leaders, digital entrepreneurs, and everyday citizens alike, Kenya’s 2025 Finance Bill has landed in Parliament with the weight of a seismic shift.
It’s not just another fiscal instrument. It’s a signal that the government is changing its playbook—tightening loopholes, expanding the tax net, and rewriting the country’s economic rulebook in real time.
From new taxes on digital trade to fresh duties on essential goods and the scrapping of long-standing exemptions, the 2025 Bill proposes reforms that, if passed, will redefine how the state collects revenue—and who pays.
“This Bill is a turning point,” said Eric Nyamongo, a Nairobi-based tax analyst. “It widens the tax net in the name of fairness but will also squeeze many already struggling taxpayers.”
A New Tax Frontier: The Digital Clampdown
One of the most discussed parts of the Finance Bill is its ambitious move to tax the digital economy. If passed, digital services provided by non-resident entities—think Netflix, Spotify, Amazon, and freelance platforms—will now be taxed in Kenya if consumed locally.
For context, such taxation of non-resident entities is part of a growing global trend. But the local implications are stark.
A non-resident supplier who delivers services via a website, app, or online platform will be deemed to have earned income in Kenya—even if they have no office here.
“This could increase the cost of streaming services, online software subscriptions, and digital advertising,” said Njeri Mwangi, a digital marketing consultant. “Small agencies that depend on foreign tools might be forced to raise prices.”
Minimum Tax for Multinationals
In line with global tax reforms spearheaded by the OECD, Kenya has proposed a minimum top-up tax—aimed at ensuring large multinationals don’t shift profits to low-tax countries.
Companies that pay less than the minimum effective tax rate in Kenya will now be required to top it up within four months after the end of the financial year.
While the measure aims to close aggressive tax planning loopholes, it will likely affect big tech, extractive industries, and international financial services the most.
“Kenya wants its fair share of revenue from these global giants,” said Charles Otieno, a corporate tax advisor. “But it must balance that with remaining attractive to foreign investors.”
VAT: The Devil in the Deletions
The Finance Bill makes dozens of deletions to VAT exemptions, which are likely to increase the price of goods and services previously considered essential or strategic.
Among those affected:
- Medical imports previously exempted under donor-funded projects.
- Certain foodstuffs and agricultural inputs.
- Spare parts for aircraft.
- Goods for charitable organisations.
Though some exemptions remain temporarily in place until June 2026, many are slated for removal. In their place, the Bill introduces new zero-rated categories focused on:
- Electric vehicles and bicycles
- Solar and lithium batteries
- Locally manufactured mobile phones
- Animal feed inputs
The message is clear: Kenya wants to nudge industry toward green energy and local manufacturing.
Still, not everyone is convinced this trade-off is fair.
“It’s like robbing Peter to pay Paul,” said Naomi Wekesa, who runs a medical supplies import business. “Removing exemptions without preparing suppliers or hospitals will hurt.”
Pay As You Earn (PAYE): Reliefs Before Deductions
A small but significant change has been proposed to the PAYE system. Employers will now be legally required to apply all deductions and exemptions before calculating tax owed by employees.
This means more take-home pay for workers eligible for personal reliefs, medical cover deductions, or pension contributions.
“It’s a pro-worker move,” said David Kinuthia, a labour economist. “It prevents over-taxation, especially for lower and middle-income earners.”
Advance Pricing Agreements (APA): A Lifeline for Corporates
In a win for multinationals, the Bill introduces Advance Pricing Agreements (APAs). These are pre-agreed tax arrangements that help companies avoid later disputes over cross-border pricing.
The Kenya Revenue Authority (KRA) will now be able to enter into binding agreements on how to handle related-party transactions—often the flashpoint for transfer pricing audits.
“It brings certainty to companies and reduces tax litigation,” said Stella Abdi, head of compliance at a global logistics firm.
Excise Duty: A Thicker Wall for Imports
Excise duties have been broadened and intensified. The Finance Bill targets several categories of imported goods, increasing excise on:
- Onions, potatoes, and eggs
- Plastic packaging
- Printed materials, including labels and cartons
- Float glass and adhesives
In some cases, duties are pegged at 25% of the value or KSh 200 per kilogramme, whichever is higher.
While local manufacturers see it as protectionism in their favour, importers are bracing for higher costs.
“This will likely lead to shortages or price hikes in the short term,” warned Joy Wanjiku, a Mombasa-based importer. “Not all local substitutes are ready or of comparable quality.”
Income Tax: Tidying Up or Shifting Burden?
Several changes to income tax provisions aim to clean up outdated language or close perceived gaps. Among them:
- Replacing “husband” with “spouse” for gender-neutral tax reliefs.
- Clarifying definitions around “related persons” to prevent tax avoidance through shell structures.
- Scrapping various deductions, including some linked to charitable donations and business expenses.
More controversially, the definition of “company” is widened to include trade associations and clubs—meaning they could now face capital gains tax.
Social Health Insurance: New Treatment for Contributions
The Bill aligns tax exemptions with the new Social Health Insurance Fund, replacing NHIF under the Social Health Insurance Act, 2023. All contributions and payments to the Fund are now explicitly recognised under the First Schedule of the Income Tax Act.
This sets the stage for enforcement of universal health coverage funding but may trigger new compliance costs for employers.
Tax Procedures: More Transparency, Better Tech Rules
The Bill includes changes that require the KRA to:
- Give reasons for revised tax assessments.
- Accept that taxpayers won’t be penalised for withholding failures if the final tax was paid.
- Be clearer when electronic tax systems cause errors.
The government will now have powers to waive penalties if the KRA’s own digital system caused the delay.
Export and Investment Levies: A Boon for Steel and Cement
To encourage industrial production, the Bill reduces levies on iron and steel products from 17.5% to 5%. This comes after sustained lobbying by players in the construction and manufacturing sectors.
Public Response: Concern and Cautious Optimism
In public forums and across media, reactions have been mixed.
Business lobbies like the Kenya Association of Manufacturers (KAM) have welcomed support for local production but expressed alarm at the unpredictability of tax policy.
Consumer groups have warned that deletion of VAT exemptions could drive up costs at a time when inflation remains stubbornly high.
Meanwhile, Parliament’s Finance and National Planning Committee, chaired by MP Kimani Kuria, has promised public participation sessions before the Bill is passed.
“We’re aware of the concerns. But the country must raise revenue to pay its debts and invest in services,” Kuria told reporters on Monday.
A Tax Tightrope
The Finance Bill 2025 reads like a fine balancing act—between fiscal ambition and public tolerance, between global tax reform and local realities.
Kenya is not alone in these efforts. But the scale and speed of the proposed changes mean that businesses, workers, and even tech platforms must brace for a new era of compliance.
There is still room for amendments before the Bill is passed into law. But the direction is clear: no one is immune. Everyone will pay more attention—if not more tax.
