The Finance Bill 2025 is here, and unlike its predecessor that sparked nationwide Gen Z-led protests in 2024, this year’s version takes a softer approach.

The 2024 bill was widely rejected for targeting individuals with tax hikes on basic goods and proposing a controversial motor vehicle tax, triggering mass demonstrations that led to its withdrawal.

In contrast, the 2025 bill treads more carefully. It focuses on businesses and refining existing tax laws instead of introducing fresh taxes. However, some observers claim the bill has some sinister motive, describing it as “panya anayeuma akipuliza.” The government aims to raise an additional Sh 35 billion through these changes.

The Cabinet has approved the proposed bill, and it’s currently in the public participation phase before being tabled in Parliament. Kenyans have been invited to give their views, marking a notable attempt at inclusivity this time around.

Previously, parliamentary leadership had hinted that the government would use social media as one of the avenues it would deploy in the collection of views, since not everyone has the chance to show up and contribute at public participation meetings.

So, what’s in the bill? Here’s a breakdown of the good, the bad, and the ugly.

What’s friendly in the bill

1. Relief for employees
One notable change benefits employees who travel for work. The tax-exempt per diem allowance has been increased from Sh 2,000 to Sh 10,000. For example, if an employee currently earns a daily allowance of Sh 4,000, only Sh 2,000 is tax-exempt. Under the proposed bill, the entire Sh 10,000 will now be exempt, allowing employees to enjoy more take-home benefits during work-related travel.

2. Early access to pension benefits
Currently, pension income of up to Sh 35,000 per month is tax-free, but only for those aged 65 and above. The bill now proposes to allow tax-free access to pension income for anyone who has been a member of a pension scheme for at least 20 years, regardless of age. This will provide earlier financial relief for long-term savers.

3. Expanded mortgage relief
Mortgage interest payments already reduce taxable income. The bill now proposes to extend this relief to include loans taken for home construction, not just for home purchases or renovations. This offers a financial break to those building homes from scratch.

4. Crypto tax cut
Crypto traders will breathe a little easier. The digital asset tax, which currently charges 3% on gross sales, is set to drop to 1.5%. However, critics argue that taxing the value of sales instead of profits remains unfair, especially when traders sell at a loss and still owe taxes.

Bitter pill in Finance Bill 2025

1. Limited loss carryforwards

Currently, businesses, especially startups, can carry forward losses indefinitely to offset profits in future years. The new bill proposes to limit this period to five years. This has capacity to stifle long-term growth and discourage investment in high-risk sectors.

2. No more capital loss relief

Under the current law, capital losses (like from property sales) can be used to reduce future capital gains taxes. This provision will be scrapped under the new bill, meaning businesses will be taxed on their gains without relief for past losses.

3. End of preferential tax rates

The bill targets industries enjoying lower tax rates. Currently, motor vehicle assemblers and real estate developers benefit from a 15% income tax rate instead of the standard 30%, provided real estate firms construct at least 100 units per year. Under the new proposal, these preferential rates will be eliminated, making the playing field more even, but also costlier for these sectors.

VAT adjustments that could hurt consumers

While the bill avoids new direct taxes on individuals, changes to Value-Added Tax (VAT) are likely to have consumer-level impacts.

1. From zero-rated to tax-exempt

Some items will shift from zero-rated (0% VAT with refund eligibility) to tax-exempt (0% VAT but no refund eligibility). This change affects:

• Pharmaceuticals

• Animal feeds

• Locally assembled mobile phones

• Motorcycles and electric bikes

• Solar and lithium batteries

• Electric buses

“I won Sh 224k bet but in the morning I had nothing,” says Harrison Mwaura

Businesses in these sectors will no longer get VAT refunds, potentially raising the cost of goods passed on to consumers.

Internet services redefined

The bill proposes to reclassify internet services under electronic services, grouping them with web hosting and digital content. This redefinition might trigger new VAT implications for digital services.

Data privacy concerns

A controversial provision in the bill seems to grant Kenya Revenue Authority (KRA) access to business trade secrets and customer data. This raises serious privacy concerns, especially for businesses in education, healthcare, and technology.

Steel and iron levy reduction

Currently, a 17.5% tax is imposed on certain imported iron and steel products, primarily used in construction. This tax was originally intended to encourage local production by discouraging imports.

Under the new bill, this levy is reduced to 5%, making it cheaper to import these materials. While this benefits importers and some businesses, it may negatively impact local manufacturers who previously relied on the protection of higher import taxes.

The shift could lower costs in construction and manufacturing but also increase competition for local producers.

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Tax Procedures Act adjustments

The bill also revises the Tax Procedures Act, primarily impacting businesses. When filing taxes, companies that overpay VAT can request a refund, typically processed within 90 days. Under the new bill, the refund period is extended to 120 days, meaning businesses will have to wait longer to recover excess payments.

Overall, the finance bill appears to be business-focused and less aggressive than the one tabled in 2024.  It does not bring new taxes and takes an approach that appears to be cleaning the system and tightening loopholes.

While some proposals are welcomed, others will deal a blow to startups, investors, and manufacturers. Only time will tell what the final bill will look like after being tabled in parliament and amendments, if necessary, are made.