Cabinet backs Finance Bill 2025 to support small businesses and retirees

The Cabinet has given its backing to the Finance Bill 2025. This new legislation aims to strengthen the country’s tax system by plugging gaps that have allowed misuse of public funds, particularly through inflated tax refunds.

The Finance Bill, 2025, as highlighted in the cabinet dispatch, is designed not to increase taxes but to make tax processes more efficient.

By amending key laws such as the Income Tax Act, VAT Act, Excise Duty Act, and the Tax Procedures Act, the Bill focuses on streamlining tax refund procedures and reducing the time it takes to collect taxes.

These changes are expected to tackle the delays that have previously hindered smooth revenue collection.

The Bill introduces new measures to help small businesses thrive, including a provision that allows them to immediately deduct the cost of tools and equipment they purchase in the same year.

This change is expected to relieve financial pressure on small businesses by speeding up the tax relief process and enabling them to reinvest in their operations without unnecessary delays.

Another important change will benefit Kenya's retirees.

Under the new Bill, all gratuity payments, whether from public service or private pension schemes, will be completely tax-free.

This initiative aims to provide senior citizens with greater financial security after retirement, ensuring that they are able to enjoy their savings without being burdened by taxes.

In addition, the Finance Bill mandates that employers must automatically apply tax exemptions and reliefs when calculating Pay As You Earn (PAYE) taxes for employees.

Many workers have faced challenges because their employers fail to apply these reliefs, forcing employees to go through the lengthy process of claiming refunds from the Kenya Revenue Authority.

These reforms are part of the government's broader economic agenda, which seeks to promote growth and inclusivity.

The Finance Bill is intended to improve tax compliance and ensure that every taxpayer contributes fairly to the national coffers, without imposing new taxes.

The government hopes these measures will increase trust in the tax system, reduce the risk of corruption, and provide more stability for the economy.

The Bill, now approved by the Cabinet, is expected to be debated in Parliament soon.

If passed, it will bring about significant improvements in the way taxes are collected, managed, and distributed.