President William Ruto during the signing of seven parliamentary Bills that will accelerate the achievement of our Bottom-Up Economic Transformation Agenda. [PHOTO HIRAM OMONDI/ PCS, 11/12/2024]
President William Ruto yesterday signed the Finance Bill 2025 into law, introducing changes in tax administration aimed at increasing his embattled government’s revenue as the country grapples with mounting public debt and economic pressures.
The new measures, many of them set to take effect on July 1, have minimal implications in terms of hiking taxes as the government tried to avoid pushback from Kenyans witnessed in 2024 when it proposed punitive tax measures but later withdrew the bill following Gen Z protests last June.
The Bill tries to reform the tax system in a bid to expand tax collection efforts while offering some relief to workers and investors.
Without major new tax measures, the Kenya Revenue Authority (KRA) now faces the tough task of meeting an ambitious Sh2.75 trillion revenue target for the 2025/26 fiscal year.
KRA has consistently missed revenue collection targets, forcing Treasury to reduce the target owing to a sluggish economy.
The higher revenue collection target is despite little yield expected from the Finance Act 2025 and is also amid growing public frustration over slow growth in the economy and persistent unemployment.
Even as Treasury stayed away from new tax measures, there are still sectors that have been hit, including importers of materials used in construction. The Finance Act 2025 has imposed the Export and Promotion Levy on ceramic products at three per cent and on iron and steel bars at 17.5 per cent.
“The levies are intended to boost local manufacturing and investments in the housing and steel industries,” said Parliament in a brief when it forwarded the Bill for assent by President William Ruto.
The Finance Bill was passed by the National Assembly on June 19. The Ruto government is battling multiple crises, including a slowing economy and persistent challenges in job creation, making the KRA’s performance critical.
Many businesses were affected across many parts of the country on Wednesday as protests against police brutality, abductions and extrajudicial killings led primarily by young people erupted.
Kenya’s debt stood at a record Sh11.36 trillion by March 2025, pushing Ruto’s administration to seek more domestic revenue. It is expected to climb further, with the government set to borrow Sh923.2 billion over the 2025.26 financial year to plug the fiscal deficit.
Treasury’s revenue mobilisation strategy is central to President Ruto’s efforts to deliver on its pledges for economic growth and employment will depend on the KRA’s success in collecting these projected revenues.
Ruto’s administration reckons that increased tax collection is necessary to fund its budget and stimulate economic growth.
The President also assented to the Appropriation Bill, which gives the government the approval to spend Sh4.29 trillion over the next financial year.
This will be financed partly through revenues of Sh3.32 trillion, including the tax revenues KRA will collect, which is projected to be at Sh2.75 trillion, and Ministerial Appropriations in Aid (AIA) of about Sh567 billion. To implement the budget, the government will also borrow Sh923.2 billion from both local and external lenders.
The Appropriations Act 2025 also authorizes the National Treasury to release Sh1.877.5 billion from the Consolidated Fund for the fiscal year ending June 30, 2026.
The budget allocates Sh1,805.02 billion for recurrent expenditure. It also designates Sh 744.52 billion for development. An additional Sh671.99 billion from Appropriation in Aid will be utilized by government entities.
A portion of development funds, specifically Sh47.6 billion, is designated for agriculture and food security initiatives. These efforts are aimed at curbing the country’s reliance on food imports. This,Parliament in a brief when it forwarded the Appropriations Bill 2025 to the President for assent noted, would “support food security and reduce the country’s reliance on food imports”.
It added that the budget for the 2025/26 year was aimed at “supporting key development initiatives and enhancing service delivery in alignment with the priorities of the citizenry. It further reinforces the administration’s commitment to advancing the Bottom-Up Economic Transformation Agenda by sustaining momentum on inclusive growth and equitable socio-economic development”.
The newly signed Finance Bill 2025 amends various tax laws. It introduces measures designed to expand the tax base and enhance collection efficiency for the KRA.
Among the key changes, employers are now required to automatically apply tax reliefs, deductions, and exemptions for employees.
The daily tax-exempt subsistence allowance is set to increase from Sh2,000 to Sh10,000. Gratuity and allowances from public pension schemes will also be exempt from income tax under the new law.
The bill introduces several investment incentives. It includes an investment allowance deduction for spectrum licenses and fiber optic cable rights for telecommunication operators.
Capital Gains Tax (CGT) exemptions will apply to property transfers within Special Economic Zones. Similar exemptions extend to gains on securities traded on Capital Markets Authority-licensed exchanges.
For certified investments exceeding Sh3 billion, the CGT rate will be reduced from 15 per cent to 5 per cent.
In an effort to widen the tax net, the scope of the “Significant Economic Presence Tax” has been expanded.
This now includes income from digital services provided by non-residents through internet or electronic networks, removing the prior Sh5 million threshold.
Furthermore, a 5 per cent excise duty on amounts deposited into betting and gaming wallets is introduced. A new 10 per cent excise duty on fees charged by virtual asset providers will replace the repealed Digital Assets Tax.
Other measures aim to bolster local manufacturing and public health. VAT exemptions are introduced for inputs, machinery, and raw materials used in the manufacture of mosquito repellents, as well as for imported repellents.
Local teas are now exempt from VAT. Packaging materials for tea and coffee are zero-rated.
Through the Act, the government has made an attempt to attract firms to the Nairobi International Financial Centre, increasing to 20 years the time that some of the firms running under NIFC while paying corporation tax of 15 per cent from the earlier 10 years.
The KRA’s ability to implement these new measures will be a key determinant of the government’s fiscal performance. It will also be critical to the Ruto administration’s capacity to address mounting economic challenges.