In the wake of last year’s tax-related unrest, the Kenyan government has introduced the Finance Bill 2025, signaling a strategic pivot from introducing new taxes to enhancing tax administration and closing existing loopholes.
This move aims to bolster revenue collection without imposing additional financial burdens on citizens.
Key Highlights Are:
1. No New Taxes Introduced
Learning from the 2024 protests the government has refrained from proposing new taxes in the 2025/26 budget.
Instead, the focus is on improving tax collection efficiency and sealing revenue leakages.
2. Fiscal Deficit Targeted at 4.5% of GDP
The budget outlines a total expenditure of approximately KSh 4 trillion, with a planned fiscal deficit of 4.5% of GDP.
This is a reduction from the previous year’s 5.1%, reflecting efforts to enhance fiscal discipline and reduce public debt vulnerabilities.
3. Enhanced Tax Administration Measures
Access to Financial Data: The Kenya Revenue Authority (KRA) may be granted access to individuals’ and businesses’ financial data to combat tax evasion, a proposal that has raised privacy concerns.
Digital Asset Tax Reduction: The tax rate on digital assets is proposed to be reduced from 3% to 1.5%, aiming to encourage compliance among digital asset holders.
VAT Refund Period Shortened: The waiting period for VAT refunds on bad debts is proposed to be reduced from three years to two, improving cash flow for businesses.
4. Adjustments in Tax Procedures
Tax Loss Carryforward Limitation: Taxpayers may be restricted to carrying forward tax losses for a maximum of five years, impacting long-term financial planning for businesses.
Mandatory Electronic Tax Invoicing: All registered persons making supplies, including exempt supplies, will be required to issue electronic tax invoices, enhancing transparency and compliance.
5. Reclassification of Goods and Services
Certain goods and services are proposed to be reclassified between taxable, exempt, and zero-rated categories, affecting VAT obligations for businesses dealing with these items.
Public Engagement
The Finance Bill 2025 is currently under parliamentary review, with public participation forums expected to be announced.
Stakeholders are encouraged to engage in these discussions to provide feedback and influence the final provisions of the bill.
In a Nutshell …..
The Finance Bill 2025 represents a deliberate shift towards strengthening tax administration and enhancing fiscal responsibility without introducing new taxes.
By focusing on efficiency and closing loopholes, the government aims to increase revenue collection while maintaining public trust and economic stability.
For a more detailed discussion on the Finance Bill 2025, you can watch the following video:
