EXPLAINER: What to know about Finance Bill, 2025
The Bill proposes wide-ranging tax changes meant to tighten compliance and boost revenue collection, as explained by the National Treasury.
The Finance Bill, 2025, officially released on April 30, is now under public scrutiny with county hearings already underway.
The National Assembly Committee on Finance and National Planning began collecting views from stakeholders in Nairobi and is now engaging the public across counties, with sessions in Busia and Migori on June 3, and Trans Nzoia and Nandi on June 4.
The Bill proposes wide-ranging tax changes meant to tighten compliance and boost revenue collection, as explained by the National Treasury.
The committee’s vice chairman, Benjamin Langat, emphasised the importance of public participation, stating: "This is not an exercise in futility, it’s a very important exercise. This Finance Bill is a proposal to the National Assembly, and it has to undergo the necessary legislative process, including public participation, to become law."
Langat urged the public to look at the Bill alongside the national budget. "I want to implore the public to desist from looking at the Finance Bill in isolation. When you tell us to employ junior secondary school teachers, or even more nurses, the money to cater for that must come from somewhere. This Bill is the instrument we use to raise such funds," he said.
On Saturday, stakeholders, including Grant Thornton shared views on the Bill.
The firm gave a detailed analysis of the proposals and their expected impact on individuals and businesses.
Income Tax
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Extensive definition of royalty payments
The Bill proposes to include software distribution with regular payments under the definition of royalty.
Implication: This expands the scope of royalties and will increase compliance obligations while reducing economic gains. -
Minimum top-up tax due date
Taxpayers will be required to pay the minimum top-up tax by the end of the fourth month after the year of income.
Implication: Clarifies payment deadlines introduced in the 2024 Tax Laws Amendment Act. -
Repeal of 100% and 150% investment allowances
The Bill seeks to remove investment deductions tied to projects outside Nairobi and Mombasa or in special zones.
Implication: May reduce incentives for large investments in less-developed areas. -
100% Capital allowance on non-machinery items
Clarifies that tools, utensils, and similar items not classified as machinery can be fully deducted.
Implication: Helps businesses by easing compliance and improving certainty. -
Removal of deductibility of sports sponsorship expenditure
Removes tax deductions for approved sports sponsorships.
Implication: Could hurt sports development, especially among betting firms that support local talent. -
Tax deductibility of expenditure on the construction of a public sports facility
Expenditure for building public sports facilities becomes deductible.
Implication: Encourages private contributions to public sports infrastructure. -
Limitation on carrying over tax losses
Carryover of tax losses will be limited to five years.
Implication: Could discourage long-term investments that take time to become profitable. -
Deletion of the provision providing for capital losses deduction against future capital gains
Taxpayers will no longer offset capital losses against future capital gains.
Implication: Taxpayers may face higher tax even after incurring recent losses. -
Deletion of the double tax relief provision on capital gain tax
Proposes removal of exemption on income chargeable under other provisions.
Implication: May result in double taxation for some capital gains. -
Clarity regarding CbCR filing for constituent entities based in Kenya
MNE groups can designate one Kenyan entity to file the Country-by-Country Report.
Implication: Provides filing clarity for multinational companies operating in Kenya. -
Repeal of CbCR filing exemptions for resident surrogate parent entity
Removes exemptions from CbCR filing by resident surrogate parent entities.
Implication: Aligns local law with global standards under BEPS Action 13. -
Introduction of Advance Pricing Agreements
Allows agreements on fixed pricing for up to five years for related-party transactions.
Implication: Reduces disputes and litigation over transfer pricing. -
Withholding tax on payments to charterers and ship owners
Non-resident ship owners and charterers, except in transhipment, will face withholding tax.
Implication: Increases tax revenue but may raise shipping costs. -
Automatic approval of a change in accounting periods
Requests for accounting period change are automatically approved if no response in six months.
Implication: Prevents delays and uncertainty for taxpayers. -
Tax exemption of gains on transfer of securities
Gains from securities traded on licensed exchanges will be exempted.
Implication: Likely to attract more investors to the local market. -
Tax exemption of dividends paid by a company certified by NIFCA
Dividends will be exempt if the company reinvests at least Sh250 million.
Implication: Encourages large-scale reinvestments by companies. -
Tax incentives for companies certified by NIFCA
Certified companies enjoy reduced tax rates for up to 20 years based on investment size and local employment.
Implication: Supports both foreign direct investment and local job creation, especially for start-ups. -
Digital asset tax reduced to 1.5%
The digital asset tax will drop from 3% to 1.5%.
Implication: Encourages growth and trading in the digital asset sector. -
Extensive definition of Significant Economic Presence Tax
SEP tax will now include internet-based and digital marketplace transactions.
Implication: Clarifies who is liable for SEP tax in the digital economy. -
Removal of the threshold for the applicability of Significant Economic Presence Tax
Deletes the Sh5 million exemption for non-resident persons.
Implication: Could raise costs for small foreign digital service providers and reduce Kenya’s digital appeal. -
Fringe benefit taxed at a resident corporate tax rate
Fringe benefits will now be taxed at the corporate rate.
Implication: Simplifies tax computation for companies. -
Requirement to include the dividend distributed out of untaxed gains in the tax return
Companies must declare such dividends in their tax return.
Implication: Aims to improve transparency in tax filings. -
Withholding tax on the sale of scrap and the supply of goods to a public entity
Introduces withholding tax on scrap sales and goods supplied to public bodies.
Implication: Ensures taxes are collected on such transactions. -
Personal tax
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Increase of per diem threshold
Raises the daily reimbursement limit from Sh2,000 to Sh10,000 for official travel.
Implication: Reflects rising costs and benefits workers. -
Employee reliefs and deductions
Requires all deductions and reliefs to be applied before computing PAYE.
Implication: Ensures accurate PAYE calculations and fairer tax for employees.
