- The Finance Bill 2025 proposes to raise the daily tax-free limit for travel and subsistence allowances for private sector employees from KSh 2,000 to KSh 10,000
- To promote gender neutrality, the bill replaces the term “husband” with “spouse” in pension provisions
- Finance Bill 2025 expands the Significant Economic Presence (SEP) tax to cover all income earned through electronic networks, removing the KSh 5 million threshold for non-residents
Elijah Ntongai, a journalist at TUKO.co.ke, has more than four years of financial, business, and technology research and reporting expertise, providing insights into Kenyan and global trends.
The Finance Bill 2025 has introduced a set of proposals targeting the Income Tax Act.
Source: Twitter
TABLE OF CONTENTS
Many of the proposals are designed to clean up outdated clauses and enhance tax compliance.
The proposed changes are expected to impact both individuals and businesses across a range of sectors, with reforms touching on allowances, pensions, digital taxes, and investment deductions.
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1. Subsistence and travel Allowances
The bill has proposed an increase on the tax-free limit for subsistence, travel, entertainment, or other allowances for private sector employees traveling on official duties outside their usual workplace from KSh 2,000 to KSh 10,000 per day.
2. Gender-neutral pension provisions
The term “husband” in pension income provisions will be replaced with “spouse” to ensure gender neutrality, clarifying that either gender can contribute to pension schemes.
3. Pension payment exemptions
Following the Tax Laws (Amendment) Act, 2024, which exempted all pension payments from tax, the bill has proposed the deletion of all redundant provisions exempting lump-sum pension payments to clarify that all pension payments (lump-sum or monthly) are tax-exempt.
Additionally, the bill clarifies that gratuity payments from both public and private pension schemes are fully exempt, ensuring retirees receive the full value of their gratuity.
4. Withholding tax
Tax Laws (Amendment) Act, 2024 introduced withholding tax on payments made for goods supplied to public entities and for the sale of scrap. However, 7 the provision that facilitates withholding tax for these categories of income was inadvertently not amended to include this new tax items.
The Bill proposes to amend the Income Tax Act to make it clear that payments for goods supplied to public entities, and money earned from selling scrap, will be treated as income that is subject to withholding tax.
5. Significant Economic Presence (SEP) tax
The Tax Laws (Amendment) Act, 2024 replaced the digital service tax with the Significant Economic Presence (SEP) tax, which applies to nonresident persons earning income from services provided through a digital marketplace in Kenya.
The Finance Bill 2025 proposes an extention of SEP tax to cover income earned through the internet or electronic networks, not just digital marketplaces, ensuring fairness in taxing digital services.
The bill also proposes the removal of the KSh 5 million threshold for SEP tax for non-residents to enhance compliance and close revenue loopholes, as non-residents are not required to file tax returns in Kenya.
6. Minimum top-up tax
The Tax Law (Amendment) Act 2024 introduced Minimum Top Up Tax, but failed to provide the due date for the payments.
The bill sets the due date for the Minimum Top-Up Tax, introduced in 2024, as the end of the fourth month after the accounting period, aligning with the payment of the balance of tax.
7. Investment deductions
The bill allows 100% deduction of costs for low-value items (e.g., utensils, linen, industrial tools) in the first year of use, easing compliance for small businesses.
The bill also seeks to introduce deductions for costs incurred in constructing public sports facilities to incentivse private sector investment in sports infrastructure.
Additionaly the bill seeks to restricts accelerated investment deductions to licensed Special Economic Zones (SEZ) developers, operators, and enterprises to prevent abuse by non-SEZ entities.
8. Mortgage interest relief
The bill will extends tax relief on mortgage interest (up to KSh 360,000 per annum) to include mortgages for constructing residential houses.
9. Shipping business taxation
The bill clarifies that tax on income from non-resident shipowners is collected as withholding tax, remitted within five working days after withholding.
10. PAYE compliance
The bill introduces a requirement for all employers to apply all applicable deductions, reliefs, and exemptions when computing PAYE to reduce overtaxation and refund claims.
The bill also deletes the requirement for issuing physical PAYE certificates, reflecting the shift to electronic filing.
Source: Twitter
Fridge benefits tax
Earlier, TUKO.co.ke reported that the National Treasury has proposed raising the Fringe Benefit Tax (FBT) from 9% to 30% in the Finance Bill 2025, aligning it with the corporate tax rate.
This tax applies to non-cash employee benefits such as low-interest loans, company vehicles, and other perks, which are considered taxable income.
Currently, the Kenya Revenue Authority sets the FBT rate quarterly based on market lending rates, but the new proposal seeks a fixed rate.
Source: TUKO.co.ke
