Government Clarifies Finance Bill 2025, Emphasizes Broadened Tax Base and Fairness

The Kenyan government’s 2025 Finance Bill aims to broaden the tax base, promote fairness, and ensure sustainable national development. This will mainly be achieved by widening the tax net, ensuring more individuals and businesses contribute to the national revenue. This approach aims to distribute the financial burden more equitably, ensuring that those who benefit from public infrastructure like good roads, equipped health facilities, and educational opportunities contribute their fair share. A broader tax base will ease the load on any single group, preventing over-taxation.

Several key proposals in the Finance Bill 2025 aim to enhance tax transparency and efficiency. These are the ones that are relevant to our youthful audience:

Capping of Tax Losses: The Bill proposes a five-year limit for carrying forward tax losses. This measure seeks to improve transparency, encourage timely tax filing, and strengthen the government’s revenue base. It also aims to create a more predictable tax environment, with the government open to verifying tax loss claims to ensure fairness.

Deductibility of Sports Sponsorship: The Bill introduces measures to scrutinize sports sponsorships, ensuring genuine efforts that benefit sports, the community, and Kenyans at large. This comes amid concerns that some organizations, including betting companies, may inflate sponsorship budgets to reduce tax obligations. KRA will monitor and review sponsorship claims on a case-by-case basis, promoting investments in infrastructure like stadiums over one-time purchases, fostering long-lasting community benefits, job creation, and talent nurturing, aligning with the Bottom-Up Economic Transformation Agenda (BETA).

Data Management and Reporting: The Bill introduces updates empowering KRA to access data to improve tax compliance, especially targeting tax evasion through online transactions. Despite potential data privacy concerns, the government asserts that a robust Data Protection Act and an empowered Office of the Data Protection Commissioner will ensure responsible use of data for lawful purposes.

Digital Marketplace and Lenders: The Finance Bill aims to harmonize the digital marketplace across the VAT Act and Income Tax Act, promoting fairness and expanding the tax base to include all online or offline businesses generating income in Kenya. While recognizing concerns from content creators and small online traders, the government is exploring the waiver or review of the digital content withholding tax as a gesture of goodwill. Digital lenders extending credit through electronic platforms will be subject to a 20% excise duty on fees charged, an upward review of existing percentages to ensure equity and regulate the space to protect consumers from exploitative rates.

Electronic Services: Taxing electronic services reflects an effort to align tax policy with evolving media consumption trends, promoting equity between traditional and digital broadcasters. The rationale is that digital platforms, which profit significantly, should contribute to national revenue, benefiting from public infrastructure like roads, power, and internet access, which are tax-payer funded.

Tax Refunds: The Bill broadens the legal framework for handling refunds, penalties, and interest objection fees, moving beyond just section 47 of the Tax Procedures Act. The government emphasizes that while refunds are due, one must pay first. An amnesty for tax returns prior to 2024 ends in June this year, after which penalties and interest will apply, except for errors due to system-related issues.

It appears that the Finance Bill 2025 is not intended to stifle creativity or growth but rather to promote fairness, economic justice, and national progress.