NAIROBI, Kenya – In a move to improve fiscal discipline and enhance tax administration, President William Ruto’s cabinet has approved the Finance Bill, 2025.
The new Bill, which is part of the government’s broader austerity measures, seeks to close tax loopholes, streamline revenue collection, and improve efficiency in the administration of taxes.
During the Cabinet meeting held at State House, Nairobi, President Ruto directed that significant budget realignments be implemented across ministries, in line with Kenya’s policy of fiscal consolidation.
The revised measures aim to cap the fiscal deficit for the 2025/26 financial year to no more than 4.5% of GDP, a reduction from the previous year’s 5.3%.
The medium-term target is to reduce the fiscal deficit to 2.7%.
These adjustments will impact the initial budget estimate of KSh 4.3 trillion, leading to substantial revisions before the final proposal is tabled in Parliament.
Key to the Finance Bill, 2025, is the introduction of critical reforms aimed at enhancing the efficiency of tax collection.
The Bill includes provisions to streamline tax refund processes, close gaps that have historically delayed revenue collection, and reduce the number of tax disputes.
The amendments, which affect the Income Tax Act, VAT Act, Excise Duty Act, and the Tax Procedures Act, are designed to make Kenya’s tax system more transparent and equitable.
One notable change under the new Bill is the tax relief for small businesses.
These businesses will now be able to fully deduct the cost of essential tools and equipment in the year of purchase, reducing delays in accessing tax reliefs.
Another significant provision in the Finance Bill is the introduction of tax exemptions for retirees.
Gratuity payments from both public and private pension schemes will now be fully tax-exempt, ensuring that Kenya’s senior citizens can enjoy their retirement with dignity.
The Bill also mandates that employers automatically apply eligible tax reliefs and exemptions when calculating Pay As You Earn (PAYE) taxes, eliminating the need for employees to seek refunds from the Kenya Revenue Authority (KRA).
In addition to the Finance Bill, the Cabinet approved the Public Finance Management (Amendment) Bill, 2024, which aims to ensure that county governments establish County Emergency Funds to address future emergencies.
This move follows the lessons learned from the 2023 El Nino rains, which exposed gaps in counties’ preparedness.
Other approved measures include the Judges Retirement Benefits Bill, 2025, which establishes a dedicated pension and retirement benefits framework for judges.
The Bill offers enhanced benefits, including monthly pensions, gratuities, and medical coverage, ensuring judicial independence and financial security for judges after their service.
Furthermore, the Cabinet approved the construction of two Level VI teaching and referral hospitals in Bungoma and Kericho counties, in partnership with the African Development Bank, as part of the government’s commitment to improving access to quality healthcare.
To stimulate investment and deepen financial markets, the Cabinet also endorsed amendments to the Capital Markets Act, which will remove shareholder limits in regulated institutions, while retaining the discretion of the Cabinet Secretary to impose limits in specific license categories if needed.
In addition to the domestic reforms, the Cabinet approved the Draft Pest Control Products Bill, 2024, which modernizes the regulation of pest control products, ensuring better food safety and environmental protection. The Bill also supports Kenya’s agricultural exports.
Finally, Kenya’s diplomatic presence continues to grow globally as the Cabinet approved the establishment of a Consulate General in Port-au-Prince, Haiti, strengthening Kenya’s role in promoting peace and security in the Caribbean.
