The Kenya Finance Bill 2025
A Visual Guide to Key Tax Changes and Their Impact
Projected Budget
KSh 4.2T
Additional Revenue Target
KSh 70B
Target Fiscal Deficit
4.8% of GDP
The Core Objective: A Balancing Act
The Finance Bill 2025 is designed to increase government revenue and reduce debt. However, its proposals create a tension between the immediate need for money (Fiscal Consolidation) and the long-term goal of supporting ordinary citizens and green growth (BETA Agenda).
Major Shifts in Income Tax
New 5-Year Cap on Tax Losses
Previously, businesses could carry forward losses indefinitely to offset future taxes. The new 5-year limit may discourage long-term, capital-intensive projects that take longer to become profitable.
Expanded “Royalty” Definition
The definition of “royalty” will now include payments for software distribution. This change aims to increase tax collection from the tech sector by applying withholding tax to more transactions.
Software Distributor Payments
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Now Taxable
Advance Pricing Agreements (APAs)
A positive step for investors. Businesses can now enter into 5-year agreements with the KRA to pre-determine pricing for international transactions, providing tax certainty and reducing disputes.
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Increased Investor Certainty
Impact of New Indirect Taxes (VAT)
VAT on Agricultural Inputs
Removing VAT exemptions on items like fertilizer and seeds will directly increase costs for farmers. This is expected to raise food prices, impacting food security and contradicting the “Bottom-Up” agenda.
Challenges to Green Growth
New taxes on solar/wind equipment and electric buses make the transition to clean energy more expensive. This prioritizes short-term revenue over long-term environmental goals.
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Higher Costs for Green Tech
+16% VAT on Solar/Wind Gear
The Digital & Personal Tax Frontier
Taxing Digital Assets
The tax on digital assets like cryptocurrencies is being lowered and moved from Income Tax to Excise Duty, a move that may encourage compliance in the growing crypto market.
Expanded Digital Tax (SEP)
The Significant Economic Presence tax will now apply to any business conducted over an “electronic network,” removing the KSh 5M turnover threshold. This widens the tax net for all non-resident digital providers.
Changes for Employees
The tax-free per diem allowance is increasing from KSh 2,000 to KSh 10,000. However, potential removal of tax reliefs on pensions and retirement benefits creates uncertainty for retirees.