By: Amazon Koech
The Government of Kenya has published the Finance Bill 2025. As always, it comes with several proposed changes to our tax laws—some that could ease the burden on taxpayers, others that might complicate life a little more. Whether you’re employed, self-employed, running a business, or just trying to keep your household afloat, these proposals matter. Here’s what I think every Kenyan should know:
- Automatic Application of PAYE Reliefs: A Win for Workers
One of the most practical proposals in this year’s Bill is the mandatory application of PAYE tax reliefs by employers. If passed, this will mean that employers must automatically factor in all eligible tax reliefs—such as personal relief, insurance relief, or reliefs for persons with disabilities—when deducting PAYE.
For too long, employees have had to either follow up manually or live with the fact that they’re being over-taxed simply because their reliefs weren’t applied. This change will help protect workers from paying more than they legally owe, reduce unnecessary back-and-forth with the KRA, and bring a bit more fairness into the payslip.
2. Increased Tax-Free Per Diem: More Realistic Support for Work Travel
The proposed increase of the daily tax-free per diem from KES 2,000 to KES 10,000 is a significant shift. Many employees—especially in government, NGOs, and consulting—travel for work under conditions where KES 2,000 barely scratches the surface of real expenses. This update better reflects the current cost of meals, accommodation, and transport, especially in cities and remote areas. It’s a welcome move.
3. Startup Tax Incentives: Boosting Innovation and Investment
Startups certified under the Nairobi International Financial Centre (NIFC) could soon benefit from a corporate tax rate of 15% for the first 10 years and 20% thereafter. This preferential rate is designed to attract investment, especially in tech, fintech, and innovation sectors. While this may not directly touch small informal businesses yet, it signals that Kenya is actively trying to position itself as a startup hub on the continent.
4. Advance Pricing Agreements: More Certainty for Multinationals
Cross-border businesses will be able to enter into Advance Pricing Agreements (APAs) with the KRA, starting January 2026. This means multinational corporations can negotiate how they’ll be taxed on transactions with their foreign affiliates in advance, which should reduce disputes and audits. It’s a technical but important change that gives investors more predictability in Kenya’s tax regime.
5. Waiver of Penalties for KRA System Errors: A Nod to Fairness
Anyone who has dealt with KRA’s online systems knows that errors do happen—and sometimes taxpayers end up penalised for mistakes that weren’t their fault. The Bill proposes that such penalties and interest can be waived if the taxpayer shows the issue was system-related and not due to fraud or negligence. It’s a small but meaningful step towards a more just system.
6. VAT on Digital Marketplaces: Leveling the Playing Field
The Bill clarifies that VAT applies to non-resident providers of digital services in Kenya, such as streaming platforms, cloud-based tools, and other digital goods. This ensures that local providers aren’t disadvantaged and aligns with global efforts to tax the digital economy fairly. But consumers should be aware: this could mean higher costs for some digital services.
7. Environmental Levy on Select Products: Sustainable but Costly?
A new environmental levy is proposed on products like plastics, electronics, and batteries. While the intent is to promote sustainability and fund environmental conservation, there’s a real concern that manufacturers will simply pass the cost on to consumers. This needs careful balancing—so we don’t punish households while trying to save the planet.
8. Higher Turnover Tax Threshold: Breathing Room for Small Traders
Micro and small businesses earning under KES 2 million per year will be exempt from Turnover Tax if this Bill passes. That’s double the current threshold, and it’s a good move. It protects truly small hustles and informal traders from compliance burdens they may not be ready for, while encouraging them to grow into the tax net over time.
9. Taxpayer Rights Charter: Know Your Rights, Not Just Your Obligations
The KRA will be required to develop and publicize a comprehensive Taxpayer Rights Charter, and ramp up taxpayer education. This is long overdue. Many Kenyans pay taxes without fully understanding their entitlements, appeal rights, or the accountability mechanisms available. A more informed public is a more empowered public—and that’s good for democracy.
Conclusion
The Finance Bill 2025 is not just about raising revenue—it’s about trust, fairness, and the social contract between citizens and the state. While there are some commendable proposals that simplify compliance and support workers, others will require serious public scrutiny to ensure they don’t hit ordinary Kenyans too hard.
I encourage you to read the Bill, raise your voice during public participation, and stay informed. Tax isn’t just for accountants and economists—it affects all of us, and your voice matters.