NAIROBI, Kenya – A new proposal in the Draft Finance Bill, 2025, aims to introduce a withholding tax on earnings from foreign businesses supplying government tenders and scrap metal dealers, in addition to the existing 16% value-added tax (VAT).
The Treasury argues that the move is necessary to tighten tax compliance and ensure that foreign firms benefiting from large public contracts meet their tax obligations in Kenya.
If passed, the proposal will extend the tax base to include non-resident suppliers and scrap metal dealers who have previously operated without paying withholding tax.
The payments will now be taxed at the source, with the buyer responsible for deducting the tax before remitting the remainder to the supplier.
The amendment specifically targets payments for the supply of goods to public entities and the sale of scrap metal, which are currently not subject to withholding tax.
Under the proposed law, these payments will fall under the Income Tax Act, expanding the scope of taxable transactions.
Foreign suppliers to public entities already pay VAT at a rate of 16% on goods and services rendered. With the addition of the withholding tax, their overall tax burden will significantly increase.
However, the Treasury believes the new tax measures are necessary for ensuring fairness and accountability in tax collection from firms operating in Kenya, even if they are not based in the country.
The amendment comes as the government grapples with challenges in enforcing tax compliance, particularly among non-resident companies that often under-report their earnings.
Last year, Auditor-General Nancy Gathungu revealed that over Sh150 billion in taxes were lost due to companies under-declaring their revenues.
The Treasury has already implemented stricter enforcement measures, such as mandatory eTIMS receipts for tax-deductible expenses.
Under the new proposal, buyers of scrap metal and State procuring entities will be required to deduct a 5% withholding tax and remit it to the Kenya Revenue Authority (KRA) before paying suppliers.
For foreign suppliers and scrap dealers, this tax will be treated as final, meaning they will have no further tax obligations in Kenya.
The KRA will not be able to audit these foreign entities once the withholding tax is remitted.
The Treasury’s goal is to close tax loopholes and ensure that all businesses, foreign or local, contribute fairly to Kenya’s economy.
