NAIROBI, Kenya- Kenya’s 2025 Finance Bill offers a marked shift in tone from last year’s controversial fiscal approach, signalling a return to policy stability, administrative efficiency, and predictable taxation — key priorities for the country’s business community.
To be presented to parliament by Treasury Cabinet Secretary John Mbadi in June, the Bill contains no major tax rate increases, instead focusing on tightening tax administration and plugging systemic leakages.
“This Finance Bill is not being used to raise more revenue through additional or higher tax rates,” Mbadi said. “Kenyans don’t want higher taxes — that is the bottom line.”
He was speaking during a youth forum on the budget, that has been organised by digital publishers.
For businesses navigating persistent economic pressures, the CS Treasury said revenue growth must come through efficiency, not heavier burdens.
Predictable Regime, Leaner Tax Expenditures
The Finance Bill aligns closely with Kenya’s Medium-Term Revenue Strategy and National Tax Policy, both of which advocate for a stable and predictable tax environment to enable long-term business planning and investment.
One key focus is the reduction of tax expenditures — particularly those related to VAT exemptions and zero-rated goods.
“Some of these exemptions do not serve their intended purpose. They simply result in tax leakage,” Mbadi said.
“Ultimately, someone bears the cost — and it’s the honest taxpayer and compliant businesses.”
Under the proposed changes, many goods currently zero-rated will instead be moved to the tax-exempt category.
This move, while technical, aims to limit the VAT refund burden on the Kenya Revenue Authority (KRA) and curb misuse.
Digital Economy Relief
In a notable concession to the digital and tech sectors, the Digital Service Tax has been halved, dropping from 3% to 1.5%.
The move is likely to encourage compliance and relieve pressure on businesses operating in the digital economy — a sector whose growth has outpaced regulatory adaptation in recent years.
Tax Visibility and Administration
The Treasury also intends to digitally modernise the KRA to improve compliance and expand the tax base, particularly among previously informal or underreported segments.
“The visibility of taxpayers is going to be enhanced,” Mbadi said.
“We are bringing more IT into the space, which will enable more efficient tax collection and enforcement.”
For businesses, this may mean closer scrutiny — but also the promise of a more level playing field, where non-compliance is no longer a competitive advantage.
Pensions Remain Untouched
For executives and professionals nearing retirement, he said pensions and gratuity payments will not be taxed, affirming the government’s commitment to protecting retirement income.
“You are supposed to enjoy your retirement benefits in total,” Mbadi said.
Debt Strategy Remains Anchored
Addressing Kenya’s public debt trajectory — a top concern for investors — the Treasury reiterated its commitment to responsible borrowing.
“Any economy will borrow. Even the world’s largest economies are the biggest borrowers,” said Mbadi.
“But we must do so responsibly and within our fiscal framework.”
Proceeds from borrowing will continue to fund infrastructure, education, healthcare, and social development programmes — areas that underpin long-term economic productivity.
The government is projecting 5.3% economic growth in 2026, banking on improved tax collection through broader compliance rather than aggressive rate hikes.
