Kenya Finance Act, 2025

The theme of the 2025 Budget Policy Statement (BPS) is "Consolidating Gains under Bottom-Up Economic Transformation Agenda for Inclusive Green Growth." The BPS, which is the third under the Kenya Kwanza Administration, highlights the progress made in the implementation of the Bottom-Up Economic Transformation Agenda (BETA) and aligns with Kenya’s Vision 2030's Fourth Medium-Term Plan.

Notably, economic growth slowed to 4.6% in 2024 from 5.6% in 2023 due to reduced economic activity and slower private sector credit growth. However, it is expected to recover to 5.3% in 2025 and maintain that pace, supported by improved agricultural productivity, a strong services sector, and continued implementation of BETA priorities. 

The global market has also experienced uncertainty introduced by the recently issued executive order by the U.S Government, introducing a new structure of reciprocal tariffs on imports. The increased tariffs particularly affect Kenyan exporters to the USA in the agriculture, textiles, floriculture and mining industries. With potential retaliatory tariffs expected from other economic powerhouses, the proposed Finance Act, 2025 seeks to cushion the Kenyan economy. 

While the previous Finance Acts introduced significant changes for salaried persons, the Finance Act 2025 has focused on changes that widen the current tax base to meet the estimated revenue from taxes and appropriations-in-aid of KES 3.32 trillion. This is primarily made up of tax revenues of KES 2.75 trillion, appropriations-in-aid of KES 567 billion and grants of KES 46.9 billion. The Government’s fiscal policy for FY 2025/26 focuses on fiscal consolidation to reduce public debt and create room for essential public services.

Among the changes introduced by the Finance Act 2025, is the Advance Pricing Agreements (APAs) for non-resident persons who carry out business with related resident persons or resident persons who carry on business with related persons in preferential regimes effective 01 January 2026.

On VAT, The Act has several changes to the First Schedule of the VAT Act. Notable is the proposed exemption of supply of accommodation, restaurant, beauty salon and laundry services provided by the Defence Forces Welfare Services. The Act has also provided for zero rate for packaging materials for tea and coffee on recommendation by the Cabinet Secretary Agriculture.

For personal income taxes, the Act has expanded the per diem benefit from KES 2,000 to KES 10,000.

For companies operating in the country, the Act limits the period for the carrying forward of tax losses to five years from when the tax losses are incurred rather than in perpetuity.

A significant change is the deletion of the Digital Assets Tax under Income Tax Act and introduction of Excise duty on fees charged on virtual assets transactions by virtual asset providers at 10% of the excisable value.

We have also seen some provision proposed in the Bill being dropped by the Act. A seminal example is the controversial proposal for KRA to access personal and proprietary data.

We have summarized in the ensuing pages some of the proposals that have been dropped as well as those that have been enacted.