The Cabinet has approved the Finance Bill, 2025, aimed at fixing inefficiencies in Kenya’s tax system without introducing new taxes. The Bill, endorsed during a Cabinet meeting chaired by President William Ruto at State House, Nairobi, focuses on closing long-standing loopholes in tax administration that have led to revenue losses.
According to a dispatch from the Cabinet, the Bill proposes key amendments to four major laws: the Income Tax Act, VAT Act, Excise Duty Act, and the Tax Procedures Act. These changes are designed to reduce delays in revenue collection and limit prolonged legal disputes over taxation.
One of the main highlights is the plan to simplify and speed up the tax refund process. Delays in tax refunds have negatively affected individuals and businesses, making operations harder for many. The government wants to make this process faster and more predictable.
Another major reform is aimed at supporting small businesses. The Bill proposes allowing small enterprises to fully deduct the cost of tools and equipment in the year they are purchased. This change is expected to improve cash flow for businesses and reduce the long wait associated with claiming tax relief.
In a significant move for workers, the Bill mandates employers to automatically apply all eligible tax reliefs and exemptions when calculating Pay As You Earn (PAYE) taxes. This change will help workers avoid the trouble of manually claiming tax refunds from the Kenya Revenue Authority due to errors or omissions by employers.
Retirees are also set to benefit under the new proposals. The Bill exempts all gratuity payments—whether from public service or private pension schemes—from taxation. This exemption is meant to protect retirees’ income and support them in their post-employment years.
The Cabinet noted that these reforms align with the government’s Bottom-Up Economic Transformation Agenda (BETA). While the Bill does not impose any new taxes, it is expected to improve efficiency, close legal and administrative gaps, and ensure that tax revenues are properly collected and managed.
The Finance Bill, 2025, will now be presented to Parliament for further debate and possible approval before it can be implemented.
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