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Finance Bill 2025 KPMG

The Finance Bill 2025 for Kenya aims to expand the tax base and consolidate fiscal policies under the Bottom-Up Economic Transformation Agenda. Key proposals include the introduction of significant economic presence tax for online businesses, a cap on the carry forward of tax losses to five years, and various changes to VAT and personal income tax structures. The bill seeks to address economic challenges while aiming for a revenue target of KES 3.385 trillion.

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0% found this document useful (0 votes)

23 views60 pages

Finance Bill 2025 KPMG

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Maina Stanley

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Finance Bill, 2025

A KPMG Analysis.

Kenya

May 2025

kpmg.com/eastafrica
Tax – Pay As You
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Excise Duty Miscellaneous Fees Levies Act

Foreword Income Tax- Income Income

Foreword Tax- Pay Earn
As You
Income Tax- Corporation Tax
Value Value
AddedAdded
Tax ExciseDuty
Excise Duty Tax Procedures
Miscellaneous Fees
Miscellaneous Fees Levies Act
Miscellaneous Stamp Duty
Corporation TaxCorporation
Transfer
Tax Pricing Earn Tax Act Act
& Levies Fees & Levies Act Act

Foreword
The theme of the 2025 Budget Policy Statement (BPS) is "Consolidating Among the proposed changes is the expansion of the businesses subject to
Gains under Bottom-Up Economic Transformation Agenda for Inclusive Significant Economic Presence (SEP) Tax to include those operating over
Green Growth." The BPS, which is the third under the Kenya Kwanza the internet or electronic network. The Bill also proposes the introduction of
Administration, highlights the progress made in the implementation of the advanced pricing agreements for non-resident persons who carry out
Bottom-Up Economic Transformation Agenda (BETA) and aligns with business with related resident persons or resident persons who carry on
Kenya’s Vision 2030's Fourth Medium-Term Plan. business with related persons in preferential regimes.

Notably, economic growth slowed to 4.6% in 2024 from 5.6% in 2023 due to
On VAT, The Bill has proposed several changes to the First Schedule of the
reduced economic activity and slower private sector credit growth. However,
VAT Act. Notable is the proposed exemption of supply of electric bicycles ,
it is expected to recover to 5.3% in 2025 and maintain that pace, supported input of raw materials locally purchased or imported for the manufacture of
by improved agricultural productivity, a strong services sector, and animal feeds, and electric buses of tariff 87.02 which are currently zero
continued implementation of BETA priorities. rated.
The global market has also experienced uncertainty introduced by the
For personal income taxes, the Bill proposes to expand the per diem benefit
recently issued executive order by the U.S Government, introducing a new
from KES 2,000 to KES 10,000.
structure of reciprocal tariffs on imports. The increased tariffs particularly
affect Kenyan exporters to the USA in the agriculture, textiles, floriculture For companies operating in the country, the Bill proposes to limit the period
and mining industries. With potential retaliatory tariffs expected from other for the carrying forward of tax losses to five years from when the tax losses
economic powerhouses, the proposed Finance Bill, 2025 seeks to cushion are incurred rather than in perpetuity.
the Kenyan economy.
A significant change under the Tax Procedures Act is the proposal to
While the previous Finance Bills introduced significant changes for salaried empower the Commissioner to issue agency notices on tax disputes being
persons, the Finance Bill 2025 has focused on changes that widen the heard at the High Court and other courts.
current tax base to meet the estimated revenue from taxes of KES 3.385
trillion, made up of ordinary revenues of KES 2.84 trillion and In the following sections, we present our detailed analysis of the proposed
appropriations-in-aid. The Government’s fiscal policy for FY 2025/26 changes.
focuses on fiscal consolidation to reduce public debt and create room for
essential public services.

ForewordIncome Tax-
Foreword Income Tax- Pay –As You
Income Tax Pay As You Earn
Value
Pay As YouAdded ValueExcise
AddedDuty Excise
Value Added Tax
Miscellaneous
Duty Tax Procedures
Miscellaneous Fees Levies Act
Miscellaneous Stamp Duty
Corporation
Corporation Tax TransferEarn
Pricing Earn Tax Tax Fees & Levies ActAct Fees & Levies Act Act
Tax

Income Tax- Withholding Tax

“
Supply of goods to a public entity and sale of scrap Withholding tax on payments made to
by resident person subject to withholding tax non-resident ship owners or charterers

Proposed amendment: Proposed amendment:

The Bill proposes to subject to withholding tax
The Bill proposes to bring the two supplies to services provided by a ship owner to the Key Impact

Withholding
charge by including these two supplies in resident person procuring the service.
Section 10 of the Income Tax Act. Currently, the obligation to withhold tax on
these services were listed in the Third Schedule
Implication:
The Tax Laws Amendment Act, 2024
of the ITA at 2.5% of the gross amount,
however, they were not listed as part of income tax becomes
enforceable
introduced withholding tax on the supply of subject to withholding tax under Section 35.
goods to public entity and the sale of scrap.
However, this amendment was not effected
through Section 10 of the Income Tax Act,
which gives force to the application of
Implication:
This effectively moves the compliance on scrap and
withholding tax on such sources of income. By
including these items under Section 10 of the
obligation from the ship owners to the recipients
of the service. public
supplies.
Income Tax Act, the persons purchasing these
items will be required by law to account for
withholding tax.

Proposed effective date 1 July 2025 Proposed effective date 1 July 2025

Income Tax- Corporation Tax

Clarification of what falls under Significance
Economic Presence Tax (SEP)

Proposed amendment:
The Bill proposes to update the type of businesses subject to significant
economic presence tax to include businesses carried out over the internet or
electronic network, in addition to through a digital marketplace. Further, the
Bill propose to delete the exemption from SEP accorded to non-residents
with an annual turnover of less than KES 5 Million.`

Implication:
The proposed amendment aims to broaden the scope and tax base of
businesses subject to SEP by bringing into the tax net income earned by
non-resident persons over the internet or electronic network in addition to a
digital marketplace. The removal of the threshold also expands the number of
entities that will now be required to account for the tax.

Proposed effective date 1 July 2025

Income Tax- Corporation Tax

Reintroduction of diminution allowance

Proposed amendment:
The Bill proposes to reintroduce diminution allowance for items such
as utensils, implements or similar articles excluding plant or
machinery. The Bill proposes a diminution allowance at rate of 100%
to be deducted in the year of income in which the expense is incurred.
Implication:
The proposal will allow businesses especially in sectors such as
hospitality to get an upfront capital allowances on these items which
tend to be of low value. The proposed change brings the much-needed
clarity after several changes that have happened in last few years on
this item.

Proposed effective date 1 July 2025

Income Tax- Corporation Tax

Timber! No more deductions on the felling of timber

Proposed amendment:
The Bill proposes to delete the following paragraphs;
(I) in the case of gains or profits of the owner of any land from the sale of, or the grant of the right
to fell, standing timber which was growing on such land at the time such owner acquired such
land–
• where such land was acquired for valuable consideration, so much of the consideration
as the Commissioner may determine to be just and reasonable as representing the cost
of such standing timber; or
• where no valuable consideration was given for the land, so much of such amount as the
Commissioner may determine to be just and reasonable as representing the value of
such standing timber at the time the owner acquired such land, as is attributable to such
timber sold during such year of income;
(j) in the case of gains or profits from the sale of standing timber by a person who has purchased
the right to fell such timber, so much of the price paid for such right as the Commissioner may
determine to be just and reasonable as attributable to the timber sold during such year of
income;

Implication:
This amendment would likely result in higher taxable income for both landowners and purchasers of
timber rights, as they would no longer be able to offset income with these timber-related cost
deductions. It may also discourage timber-related transactions or increase the effective tax burden
on such activities.

Proposed effective date 1 July 2025

Income Tax- Corporation Tax

Allowability of expenditure on a public sports facility

Proposed amendment:
The Bill proposes to provide an express provision that expenditure that
is incurred in the construction of a public sports facility is deductible in
the determination of taxable income. Further, the Bill has proposed to
repeal the provision that allowed the deductibility of expenditure
incurred on sports sponsorship with the prior approval by the Cabinet
Secretary (CS) responsible for sports.

Implication:
There is a significant increase in expenditure in relation to facilities in
preparation for the upcoming 2027 African Cup of Nations that will be
co-hosted by Kenya. This proposal is seeking to ensure that private
players who undertaking such projects have a legal provision to rely on
in deducting the related expenditures as an incentive for the continued
investment in such infrastructure.

Proposed effective date 1 July 2025

Income Tax- Corporation Tax

Supply of goods to a public entity
Carry forward of losses to be

“
and sale of scrap by resident
capped to 5 years
person subject to withholding tax

Proposed amendment: Proposed amendment:

The Bill proposes to delete Section The Bill proposes to introduce a 5 years cap on

Tax losses will

15(3)(f) that allows for the carrying deductibility of tax losses. Currently, the law permits
forward of losses incurred in the taxpayers to carry forward losses indefinitely.
transfer of property. Currently, any

expire after 5
losses incurred in the transfer of Implication:
property are deductible against future Businesses with substantial capital expenditure incur
gains arising from the transfer of capital huge tax losses which can take longer to utilise,
assets.
Implication:
especially if the business does not generate profitability
as quickly. Without room for applying for an extension of years under the
proposed cap.
Taxpayers will not be allowed to carry time to utilize the tax losses, businesses with significant
forward any losses incurred by them tax losses may be negatively affected since they will
against future gains from transfer to lose tax losses that will not be utilized within the 5-year
property. period.

Proposed effective date 1 July 2025

Income Tax- Corporation Tax

Timeline for Commissioner’s decision on

change of accounting period

Proposed amendment:
Currently, the Commissioner is required to respond on application for
change of year end within six months. The Bill proposes that where the
Commissioner fails to give a decision within six months from the date of
application, the change is automatically deemed to have been accepted by
the Commissioner.
Implication:
The Bill seeks to remove uncertainty in the determination of an application
of a change in an accounting year-end. This offers relief to taxpayers who
used to wait for the Commissioner’s decision for a long period of time.

Proposed effective date 1 July 2025

Income Tax- Corporation Tax

Dividend distribution out of untaxed profits
Proposed amendment: The Bill proposes to delete section 52B(4) and replace it with a new provision requiring
that any company distributing dividends out of untaxed gains or profits to include an assessment of the same
with the self-assessment return and pay the applicable tax by the due date for self-assessment.

Implication:

The proposed amendment clarifies that a company must file and pay tax on dividends distributed out of
untaxed profits by the 30th day of the sixth month following the end of its financial year.
Proposed effective date 1 July 2025

Income Tax- Corporation Tax

Update on compliance notices by taxpayers

Proposed amendment:
The Bill seeks to amend Section 109 of the ITA by making the following adjustments to Section 109 :
a) Deletion of Paragraph 1(b) which states that ‘a person shall be guilty of an offense without reasonable excuse if they fail to furnish a full and true
return in accordance with the requirements of any notice served on him under this Act’
b) Deletion of paragraph 1(c) which states that ‘a person shall be guilty of an offense without reasonable excuse if they fail to fails to furnish within the
required time to the Commissioner or to any other person any document which under this Act, or under a notice served on him under this Act, he is
required so to furnish’
c) Deletion of paragraph 1(f) which states ‘ a person shall be guilty of an offense if they fail to produce a document for the examination of the
Commissioner in accordance with the requirements of a notice served on him under this Act’
d) Deletion of paragraph 1(h) which states ‘a person shall be guilty of an offense if they fail to attend at a time and place in accordance with the
requirements of a notice served on him under this Act’
e) Deletion of paragraph 1(j) and substituting it with ‘fails to supply prescribed certificates as is required by section 37.
Implication:
Taxpayers will not be allowed to carry forward any losses incurred by them against future gains from transfer to property.

Proposed effective date 1 July 2025

Income Tax- Corporation Tax

Charge to stamp duty on transfer of Consequence for failing to
property by the Commissioner Withhold on Rent deleted

Proposed amendment: Proposed amendment:

The Bill proposes to revoke the exemption The Bill proposes to delete Section 35(6A), which provides that no
from stamp duty for all securities of Collector of Stamp Duties and no Registrar of Titles or Land
whatever nature over property, movable or Registrar shall register property under any written law, until the
immovable and all transfers of property in rent withholding tax has been duly accounted for.
favor of or by the Commissioner.
Implication:
Implication:
Deletion of this subsection removes the restriction on stamping
This proposal is a clean up as it seeks to and registering transfer documents for properties where tax on
align the provisions on exemption from rent or premiums has not been withheld and remitted to the
Stamp Duty on transfer of property Commissioner by the due date. Further, there is a proposal in
attached as security by the the TPA not to penalize persons who have not withheld tax for
Commissioner with the provisions of the as long as the recipient of income has accounted for tax.
Tax Procedures Act.

Proposed effective date: 1 July 2025 Proposed effective date: 1 July 2025

Income Tax- Corporation Tax

Extension of approval period for

Income Tax exemption application

Proposed amendment:
The Bill proposes to amend the First
Schedule to the Income Tax Act by
extending the period of approval of
Income Tax exemption applications
from 60 days to 90 days
Implication:
The proposed amendment will have
taxpayers waiting longer to get an
approval for Income Tax exemption
approval.

Proposed effective date: 1 July 2025

Income Tax- Corporation Tax

Gains on transfer of property within Dividends paid by a company certified by the
a special economic zone Nairobi International Financial Centre

Proposed amendment: Proposed amendment:

KES 250M
The Bill proposes to amend the First The Bill proposes to exempt from tax dividends paid out
Schedule by exempting from tax the by companies certified by the Nairobi International
transfer of property by licensed SEZ Financial Centre where the company reinvests at least
developers, operators or enterprises. two hundred and fifty million shillings in Kenya in that year
of income.
Implication:
The proposal seeks to clarify that the
exemption from Capital Gains Tax resulting
Implication:
The proposal seeks to spur investment in companies Tax-Free Dividends:
from the transfer of property can only apply
where the property is transferred within an
certified by Nairobi International Financial Centre making it
easier and more attractive to invest and conduct financial Nairobi IFC companies
SEZ by a licensed SEZ developer, operator
or enterprise.
services and related activities in and from Kenya.
reinvesting
Proposed effective date: 1 July 2025 Proposed effective date: 1 July 2025

Income Tax- Corporation Tax

No incentive for capital expenditure outside Nairobi and Mombasa
Counties or in SEZs

Proposed amendment: The Bill proposes to delete the incentive of

claiming one hundred percent on cumulative investments done outside
Nairobi and Mombasa or within the special economic zone with respect to
hotel buildings, buildings used for manufacture and machinery used for
manufacture where;

▪ The cumulative investment value in three preceding years outside

Nairobi and Mombasa counties exceeds one billion shillings;

▪ The investment value outside Nairobi county and Mombasa county

exceed two hundred and fifty million shillings in that year of income;
or

▪ The person has invested in a special economic zone.

Implication: The proposal will discourage significant capital investments

in areas outside Nairobi and Mombasa counties and in SEZs. This
proposal may also act as a disincentive for investment in the tourism
industry which is a key foreign exchange earner. As a result, this will see a
reduced economic growth in areas outside the urban and reduced
investments in SEZs.

Proposed effective date: 1 July 2025

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 16
Foreword
Foreword Income Tax- – As You Pay
Income TaxPay EarnAs You Value AddedTax Procedures
Excise Duty Tax ProceduresMiscellaneous
Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Income Tax- Value Added Tax Excise Duty Fees

Corporation Tax Transfer
Tax Pricing Earn Tax Act & LeviesFees
Act & Levies Act Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Corporation Act

Income Tax- Corporation Tax

15%
Removal of tax incentives Removal of tax incentives on local
for real estate developers vehicle assemblers

Proposed amendment: Proposed amendment:

The Bill proposes to remove the 15% The Bill proposes to remove the fifteen

tax break for

tax incentive for real estate developers percent corporate tax incentive on local
that construct at least one hundred assemblers of motor vehicles.
residential units annually.

residential
Implication:
Implication: t
The proposed provision is likely to
The proposed amendment will discourage investment in the local

developers to be
disincentivize investment in the real automotive industry. While the
estate sector. The proposal also removal of the incentive could
seems to not align with the increase short-term revenue, it may

scrapped.
Government’s agenda on affordable reduce long-term economic activity in
housing and will undermine progress Kenya and job creation in the
made in the real estate sector. automotive sector.
Proposed effective date: 1 July Proposed effective date: 1 July
2025 2025

© 2024. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 17
Foreword Pay As You Earn Value Added Tax Excise Duty Miscellaneous Fees Levies Act

Income Tax- Corporation Tax

Preferential corporation tax rates for NIFC certified companies Reduction of digital asset tax rate to 1.5%

Proposed amendment: The Bill proposes to introduce a provision allowing Proposed amendment: The Bill proposes to reduce digital asset tax to 1.5%
a company certified by the Nairobi International Financial Centre Authority of the transfer or exchange value of the digital assets. Currently, digital asset
to benefit from a reduced corporate tax rate of 15% for the first ten years of tax rate is 3%.
operation, and 20% for the following ten years, provided that:
i. The company invests at least KES 3 billion in Kenya within its first Implication:
three years; Digital Asset Tax is a tax charged on turnover. Therefore, this
ii. If it is a holding company, at least 70% of its senior management staff proposal seeks to realigns with the recent reduction of the Turnover
are Kenyan citizens; and tax rate to 1.5%, which is a tax that is charged on turnover

iii. If it has its regional headquarters in Kenya, at least 60% of its senior Proposed effective date: 1 July 2025
management staff are Kenyan citizens.
In addition, in the case of a start-up certified by the Nairobi International
Financial Centre Authority, 15% for the first three years and 20% for the
succeeding four years;

Implication:
The proposed amendment seeks to provide incentives to start ups
and companies registered with the NIFCA and, also incentives
companies to set up headquarters and regional offices in Kenya.
Proposed effective date: 1 July 2025

Income Tax- Corporation Tax

Amendment to the definition of transfer Aligning penalties for underpayment of instalment
tax to the Tax Procedures Act.

Proposed amendment: Proposed amendment:

The Bill proposes to amend paragraph 6(2)(h)(v) to include “an The Bill proposes to repeal the penalty on underpayment of
individual” before the word spouse for purposes of determining a instalment tax where the Act currently provides a penalty of twenty
transfer. percent on the difference between the amount of instalment tax
payable and the instalment tax actually paid.
Currently, the Act provides that there is no transfer where the
transfer of assets are to a company where spouses or a spouse and
immediate family hold one hundred percent shareholding.

Implication:
Implication:
The proposed amendment aims to exempt individuals from what is
considered a transfer for Capital Gains Tax. However, as currently Currently, the underpayment of instalment taxes is subject to a penalty of
drafted, the lack of a comma after the word "individual" could cause 20% of the underpayment. By deleting this provision, the Bill seeks to
confusion. This provision might be read as referring only to "individual align the administration of penalties on instalment taxes with the Tax
spouses," instead of recognizing "individuals" as a separate group that Procedures Act.
should also qualify for the tax exemption.
Proposed effective date: 1 July 2025
Proposed effective date: 1 July 2025

Income Tax- Withholding Tax

WHT on qualifying dividend and qualifying
interest deemed as final tax

Proposed amendment:
The Bill proposes to make the resident withholding tax on qualifying
dividend and the withholding tax payable on qualifying interest on
housing bonds, bearer instruments and in any other case a final tax.
Implication:
The proposal would ensure that no additional taxes would be charged
on individuals earning dividend income and qualifying interest.
Further, KRA benefits from upfront revenue collection and reduced
administrative burden since there is no need to track further tax on
these dividends as the tax is withheld at source.

Proposed effective date: 1 July 2025

Foreword Income Tax- IncomePay

Income Tax- TaxAs– You Earn
Income Tax- Corporation Tax
Pay As Value
You AddedValue
Tax Added
Excise Duty
Excise DutyMiscellaneous
Tax Fees
Procedures Miscellaneous Fees Levies Act
Miscellaneous Stamp Duty
Corporation
Corporation Tax Tax
Transfer Pricing Earn Tax & Levies Act
Act Fees & Levies Act Act

Income Tax-
Transfer Pricing

ForewordIncome Tax-Income Tax-

Foreword Income Pay – You
Tax As Pay As You Earn
Value
Pay As YouAdded ValueExcise
AddedDuty Excise
Value Added Tax
Miscellaneous
Duty Tax Procedures
Miscellaneous Fees Levies Act
Miscellaneous Stamp Duty
CorporationCorporation
Tax TransferEarn
Pricing Earn Tax Tax Fees & Levies ActAct Fees & Levies Act Act
Tax

Income Tax- Transfer Pricing

Definition of “related person” broadened, and married people are in scope!

Implication:
Proposed amendment:
Currently, the ITA limits the definition of a related person to situations where,
The Bill proposes to delete the current definition and expand the in the case of two persons, one person participates directly or indirectly in
the management, control, or capital of another person.
same to include definition of related person as;
An individual who- With this proposal, the Bill aims to capture more complex relationship within
the definition of related person, particularly where more than two persons
i. Participates directly or indirectly in the management, control are involved. With respect to individuals, the Bill proposes to expand the
or capital of the business of the two persons; definition of a related person to include individuals who participate in the
management, control or capital of the business of the two persons,
ii. is associated with the two persons by marriage, consanguinity association of the individual with another through marriage and instances
or affinity; and where two persons participate in the management, control or capital of the
business of the individual.
iii. the two persons participate in the management, control or
capital of the business of the individual. This expanded definition is likely intended to strengthen enforcement of
Transfer Pricing and related-party rules by bringing within scope indirect
ownership structures and non-commercial relationships that could affect the
terms of transactions.

If enacted, the change would have implications for determining related-party

transactions and the associated disclosure obligations.

Proposed effective date: 1 July 2025

ForewordIncome Tax-Income Tax-

Income Tax- Transfer Pricing

Due date for payment of Minimum top tax clarified

Proposed amendment:

The Bill proposes to introduce the due date for minimum top-up tax
which shall be payable by the end of the fourth month after the end of
the year of income.

Implication:

Minimum top up tax was introduced by the Tax Law (Amendment) Act, 2024 where the
covered persons are required to pay the tax where the combined effective tax rate in
respect of that person for a year of income is less than 15%. For a company in Kenya to
be obligated to pay minimum top up tax, the entity should be part of a multinational
group with a consolidated annual turnover of EUR 750 million (Approximately KES
104 billion) or more in the consolidated financial statements of the ultimate parent entity
in at least two of the previous four years of income immediately preceding the first year
of income.

At the time of enactment of the Tax Law (Amendment) Act, 2024, there was lack of
clarity of the due date for payment of this tax. The Bill proposes to clarify this due date
by proposing that minimum top up tax is due for payment by the end of the fourth month
following the close of the year of income of a company.

While clarity has been provided regarding the due date of payment of the tax,
substantive implementation guidelines are yet to be issued, and these will be crucial in
clarifying the computation mechanism and scope of application of this tax.

Proposed effective date: 1 July 2025

ForewordIncome Tax-Income Tax-

Income Tax- Transfer Pricing

No more surrogates for Country-by-country reporting Implication:

Under current transfer pricing rules in Kenya, multinational enterprise

Proposed amendment: (MNE) groups with more than one constituent entity resident in Kenya may
designate one of them as a surrogate parent entity (SPE) to file the
The Bill proposes to remove the requirement of the multinational Country-by-Country Report (CbCR) locally.
enterprise group to appoint one of the constituent entities as a
surrogate parent entity for purposes of filing the country-by-country The Bill proposes to delete the reference to “surrogate parent entity” under
Section 18(8) and instead allow an MNE group to designate a constituent
report and instead have one of the constituent entities notify and file
entity in Kenya to submit the CbCR and notify the Commissioner.
the country-by-country report. In addition, the Bill proposes to have
the country-by-country notification and report filed by the last day of In our view, this change does not affect the substance of the CbCR filing
the financial year of the group. The Bill also proposes to delete the requirement but appears intended to avoid potential confusion arising from
provision of the ITA which provided for circumstances under which a the use of the term “surrogate parent entity,” which is also used under the
surrogate parent entity of a multinational enterprise group was not OECD framework but with a narrower, condition-based meaning.
required to file a country-by-country report with the Commissioner. The OECD limits the SPE role to cases where the ultimate parent entity
cannot file due to the absence of a local filing requirement, a lack of
exchange agreements, or systemic failure. While the ITA definition of SPE
does not impose the conditional requirements found in the OECD
framework, removing the term SPE helps preserve clarity and ensures the
reporting obligation remains practical and easy to enforce under Kenya’s
domestic framework

Further, the Bill indicates that the CbCR and notification shall be filed by
the last day of the financial year of the group. This contradicts the provision
of section 18(D)(2) which requires filing of CbCR not later than 12 months
after the last day of the reporting period.

Proposed effective date: 1 July 2025

ForewordIncome Tax-Income Tax-

Income Tax- Transfer Pricing

Tax Certainty with Advance pricing agreements! Implication:

The introduction of Advance Pricing Agreements (APAs) was first proposed in the
Proposed amendment:
Finance Bill, 2024 but the measure was not enacted.
The Bill proposes to introduce a provision allowing non-resident
If enacted, Kenya would align with regional peers such as Tanzania, Uganda, and
persons who carry out business with related resident persons,
Rwanda, whose tax laws already provide for APAs. However, experience across the
permanent establishments of the non-resident entities or resident region indicates that relatively few APAs have been concluded to date, often due to
persons who carry on business with related persons operating in a capacity limitations, procedural uncertainties, or low uptake from taxpayers.
preferential regime, to enter into Advance Pricing Agreements (APA)
with the Commissioner. To ensure this provision achieves its intended purpose of enhancing tax certainty
and reducing disputes, it will be important to complement the regulations with
The APA shall be valid for a period not exceeding five consecutive practical guidance, institutional support, and clear timelines for implementation. This
years. The Bill further proposes to empower the Commissioner to would help ensure that the APA framework is not only embedded in law but also
declare an APA null and void from the date of its execution if it is becomes an effective and accessible tool for both taxpayers and the tax
administration.
found that the taxpayer misrepresented material facts during the
agreement process. Proposed effective date: 1 January 2026

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 25
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As YouPay As You Value AddedExcise
Excise
Duty Duty Tax Procedures Miscellaneous Stamp Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Excise Duty Miscellaneous Fees Levies Act

Earn Value Added Tax Miscellaneous Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax & LeviesAct Fees & Levies Act Act
Income Tax- Corporation Tax Miscellaneous Fees Levies Act

Tax Act

Pay As
You Earn

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 26
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As YouPay As You Value AddedTax Procedures
Excise Duty Tax ProceduresMiscellaneous
Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Earn Value Added Tax Excise Duty Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act & LeviesFees
Act & Levies Act Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act

Pay As YouEarn
Expenditure incurred on construction of residential premises Deductions relief of employment income paid to certain non-resident persons no
Proposed amendment: The Bill seeks to expand the allowability of interest longer allowable
expense to include the construction of residential owned premises. Currently, Proposed amendment: The Bill proposes to delete the following paragraph:
the provision allows for the deduction of up to KES 360,000 on interest
incurred from money borrowed from institutions such as banks, building (r) an amount equal to one-third of the total gains and profits from employment of an
societies, the National Housing Corporation and cooperative societies for the individual who is not a citizen of Kenya and
purchase or improvement of the owner-occupied premises. i. whose employer is a non-resident company or partnership trading for
profit;
Implication: Taxpayers who construct their own homes will now ii. who is in Kenya solely for the performance of his duties in relation to his
benefit from the same deduction of up to KES 360,000 annually as employer’s regional office, which office has been approved for the
those who purchase or improve existing ones. This could spur growth purposes of this paragraph by the Commissioner;
in the residential construction sector due to improved financing iii. who is absent from Kenya for the performance of those duties for a
incentives. period or periods amounting in the aggregate to one hundred and twenty

“
days or more in that year of income; and
Proposed effective date 1 July 2025 iv. whose gains and profits from that employment are not deductible in
ascertaining the total income chargeable to tax under this Act of his
employer or of any company or partnership which controls, or is
controlled by, that employer;

KES 360,000 annual

Implication: This update seeks to align with the provision that all income derived and
accrued form Kenya is subject to tax in Kenya.

deduction now applies Proposed effective date 1 July 2025

to self-built homes.

Foreword Foreword
Income Tax- IncomeIncome
Tax- Tax Pay– As You Pay As
Value
YouAdded Value
Income Tax- Corporation Tax
Excise
Added
Pay As You Earn Value Added Tax Excise Duty
Miscellaneous
Excise Duty
Miscellaneous Fees Levies Act
Tax Procedures Miscellaneous Stamp Duty
Corporation TaxCorporation Earn
Transfer Pricing EarnTax
Income Tax- Corporation Tax
Duty
Tax Fees & Levies
Miscellaneous Fees
Act Fees & Levies Act Act
Levies Act

Tax Act

Pay As YouEarn
From KES 2,000 to KES 10,000! Deduction of tax from emoluments
Proposed amendment: The Bill proposes to increase the threshold for per Proposed amendment: The Bill proposes to amend the ITA by introducing a
diem from KES 2,000 per day to KES 10,000 per day. requirement to have employers grant employees all applicable deductions, reliefs and
exemptions before computing the tax deductible .
Implication:
This proposal will benefit employees with additional perks by increasing
the per diem threshold from KES 2,000 per day to KES 10,000 per day is Implication: The proposed amendment seeks to align the ITA with the newly
expected to ease financial pressure on employees who travel for work, introduced deductions under AHL, SHIF and post retirement medical Funds
providing them with a wider tax-exempt cushion to cater for daily introduced by the Tax Laws Amendment Act, 2024
expenses.
Proposed effective date 1st July 2025
Proposed effective date 1st July 2025

Removal of penalty for failure to supply Commissioner with PAYE deduction

Definition of “individual retirement fund” amended certificate
Proposed amendment: The Bill proposes to delete the provision of the ITA which
Proposed amendment: The Bill proposes to amend the definition of
required an employer to provide the Commissioner with a PAYE deduction
‘individual retirement fund’ by deleting the requirement to abide by the certificate.
Income Tax (Retirement Benefits) Rules which would require them to
be registered with Commissioner
Implication: The proposed amendment seeks to relieve employers from the legal
requirement of supplying the Commissioner with a PAYE deduction certificate. This
may be reflective of the fact that with iTax, any PAYE payment is reflected in real
Implication: The proposed amendment seeks to align the time and therefore the Commissioner has visibility of the PAYE remitted by
registration requirements of individual retirement funds which employers.
previously required the approval of both the Commissioner and Proposed effective date 1 July 2025
Retirement Benefits Authority. Following the enactment of the
Tax Laws (Amendment) Act, 2024, such schemes now are to be
registered with the Retirement Benefits Authority only.
Proposed effective date 1st July 2025

Tax Act

Pay As YouEarn Implication:

Reform of preferential ‘retirement income’ tax treatment
This proposal seeks to align with the changes under the Tax Laws
Proposed amendments under Section 8:
(Amendment) Act 2024 which introduced an exemption from tax for
a) Update of subsection 1 by deleting ‘husband’ and replacing it with withdrawal of pension benefits from registered pension funds,
‘spouse’. provident funds, individual retirement funds, public pension
b) Deletion of subsection 4 which exempts the first KES 300,000 from schemes or the National Social Security Fund under the following
circumstances:
tax on the pension income received by resident individuals in Kenya.
c) Deletion of subsection 5 which exempts the first KES 600,000 lump ▪ Persons who have met the retirement age as provided for under
withdrawals from pension funds or individual retirement funds. their schemes’ regulations,
d) Deletion of subsection 6 which exempts the beneficiaries of lump
sum / pension income / lump sum to an estate. ▪ Have been members of a fund for at least 20 years; or

e) Deletion of subsection 7 which provides for the treatment of a ▪ The withdrawal prior to attaining retirement age is due to ill
registered individual retirement fund, or a registered home ownership health.
savings plan are treated for tax purposes upon the death of a
beneficiary. Further, the deletions relating to the tax treatment of funds relating
f) Deletion of subsection 9 which speaks to the compliance requirement to Home Ownership Savings Plan is a clean up since the tax
for Individual Retirement Funds set by the relevant governing bodies. incentive relating to this was scrapped.
g) Deletion of subsection 9A which provides for the tax treatment funds
held in a Home Ownership Savings Plan when it loses its registration Proposed effective date 1 July 2025
status.

Tax Act

Pay As YouEarn
Refined categorization of exempt retirement benefits under paragraph 53 of the
Alignment of employer objection requirement under the ITA First Schedule
Proposed amendment: The Bill proposes that the provision in the ITA Proposed amendment: The Bill proposes to amend the First Schedule to the ITA by
which provides that the standard objection process under the ITA as outlined deleting the words payment of gratuity or other allowances paid under a public
under Section 51 of the Tax Procedures Act, equally applies to objections pension scheme and replace this with the following:
raised under Section 37 which relates to penalties / decisions made by the
(a) Payment of gratuity;
Commissioner in respect to PAYE.
(aa) Other allowances paid under a public pension scheme.

Implication:
Implication: The proposed amendment seeks to distinguish gratuity from other
The proposed amendment seeks to align the standard objection allowances paid under a public pension scheme to avoid ambiguity. With this
process for PAYE to the provision of Section 51 of the Tax amendment, gratuity paid, regardless of source will be exempted from income tax.
Procedures Act.
Proposed effective date 1 July 2025 Proposed effective date 1 July 2025

Foreword Foreword
Income Tax- Income Tax- Tax – Pay As You
Income Pay As YouValue Added
Income Tax- Corporation Tax
Excise Excise
Value Added
Pay As You Earn
Duty Duty
Other Acts Tax Procedures
Value Added Tax
Miscellaneous Stamp Duty
Corporation Tax Corporation Earn
Transfer Pricing Earn Tax
Income Tax- Corporation Tax
Tax Act Fees & Levies Act Act
Tax

Value
Added Tax

Foreword Foreword
Income Tax- Tax- Tax –Pay As You
IncomeIncome Pay As You
Value Added
Income Tax- Corporation Tax
Value Added
Excise Duty
Pay As You Earn
Excise Duty
Miscellaneous
Value Added Tax
Tax Procedures Miscellaneous Fees Levies Act
Miscellaneous Stamp Duty
Corporation TaxCorporation
Transfer Pricing
Earn Earn Tax
Income Tax- Corporation Tax
Tax Fees & Levies
ActAct Fees & Levies Act Act
Tax

Value AddedTax
Redefining Tax Invoices: Mandatory Use of e-TIMS
Proposed provision:The Bill proposes to introduce the definition of
a “Tax Invoice” in the Value Added Tax Act (VAT Act) to include
invoices generated via e-TIMS in-line with Section 23A of the Tax
Procedures Act (TPA).
Additionally, the Bill also proposes to delete the word ‘taxable’ in
Section 42(1) of the VAT Act to align with the e-TIMS requirements
whereby all invoices irrespective of their tax status are required to
be issued electronically through e-TIMS.

Implication: The proposed definition is in line with the

implementation of the Electronic Tax Invoice Management
System (E-TIMS), where the expectation is that a tax invoice for
VAT purposes should be transmitted electronically through E-
TIMS except for the expressly exempted items such as payment
of emoluments.

The deletion of the word taxable is to clarify that a tax invoice is

a requirement for all transactions and aligns to the provisions
under TPA.
Proposed Effective Date: 1 July 2025

Foreword Foreword
Income Tax- Tax- Tax –Pay As You
IncomeIncome Pay As You
Value Added
Income Tax- Corporation Tax
Value Added
Excise Duty
Pay As You Earn
Excise Duty
Miscellaneous
Tax Procedures
Value Added Tax Miscellaneous Fees Levies Act
Miscellaneous Stamp Duty
Corporation TaxCorporation
Transfer Pricing
Earn Earn Tax
Income Tax- Corporation Tax
Tax Fees & Levies
ActAct Fees & Levies Act Act
Tax

Value AddedTax
Place of supply of services.
Proposed provision : Section 8(2) of the VAT Act provides for the
conditions that crystallise the supply of services in Kenya. The Bill proposes
to amend Section 8 of the VAT Act through the inclusion of the word “and”
at the end of the opening sentence under Section 8(2) of the Act.
The Bill also proposes to delete Section 8(2)(c) and Section (8)(3)(g) by
deleting broadcast television and substituting it with internet, radio or
television broadcasting services.

Implication: The proposed introduction of the word “and“ clarifies the specific
conditions that qualify for the deeming of a supply of services made in Kenya,
provided the recipient is in Kenya, irrespective of their registration status. By
including unregistered persons, this reflects the increasing trend on consumption
of digital services by non-registered persons that is subject to VAT on the non-
resident suppliers of such services in Kenya.

The substitution of the words broadcast television with internet, radio and
television broadcasting services reflects a modernization of law to be in response
to the evolving media consumption habits. It seeks to broaden the tax base to
include streaming services that were unambiguously untaxed.

Proposed Effective Date: 1 July 2025

Value AddedTax
Claim of excess input VAT reduced to 12 months
Proposed provision : The Bill proposes to amend Section 17(5)(d)
Implication: This proposal reduces the timelines for application for
of the VAT Act to allow taxpayers to lodge a claim for refund of
refund of VAT on bad debts from 3 to 2 years and taxpayer will be able
excess tax within 12 months from the date the tax become due and
to offset the approved refund claims on past and future VAT liabilities.
payable.
The proposal to refund the output VAT resulting from bad debts by way
of offset will be advantageous to the taxpayers as the taxpayer will be
Implication: The objective of the proposed amendment is to align able to manage their cashflow.
the VAT provision relating to applying for refunds with the
provision of the TPA for any other tax other than income tax, Proposed Effective Date: 1 July 2025
which has a five-year window for application.
Refund of tax claimed on bad debts recovery
Currently, the VAT Act provides that an entity with excess input
Proposed provision : The Bill proposes to amend the VAT Act by
VAT arising from zero-rated supplies may apply for a refund
deleting the requirement for the taxpayer to refund the Commissioner
within 24 months. Taxpayers qualifying for a VAT refund claim any tax refunded by the Commissioner in cases of recovery of bad
resulting from zero-rated supplies will be required to lodge the debts by the taxpayer within 60 days of the recovery.
claims in a timely manner to avoid losing out on refund of VAT
refund claims. O Implication: This proposal aims to clean up the provisions of the law
Proposed Effective Date: 1 July 2025 VAT refund claims. with respect to refunding the Commissioner the output VAT recovered
from clients as the VAT Act provides for such recoveries should be
Refund of tax on bad debts remitted to the Commissioner within 30 days. Failure to refund the
Commissioner such taxes shall attract interest at a rate of 2% per
Proposed provision:The Bill proposes to change the period after
month in accordance with Section 31(2) and (3) of the VAT Act.
which a taxpayer can apply for a refund of VAT on bad debts from
three years to two years. Proposed Effective Date: 1 July 2025
The Bill also proposes to allow taxpayers utilize the approved
refund on bad debts against other VAT liabilities.

Value AddedTax
Tax Avoidance Schemes
Proposed provision : The Bill proposes to charge tax at the applicable rate
where a person imports or purchases goods or services which are exempt or
zero-rated under VAT preferential treatment, and the person subsequently
disposes of, or uses, the goods or services supplied in a manner inconsistent
with the purpose for which the goods or services were exempted or zero rated.
The applicable rate of tax shall be at the time of disposal or inconsistent use.

Implication : This is aimed at preventing potential tax leakages arising

from change of use of goods or services purchased with VAT preferential
treatment.

Proposed Effective Date: 1 July 2025

Repeal of the Offset Provision for Withheld VAT

Proposed provision : The Bill proposes to repeal Section 17(5)(c) of the
VAT Act, which currently allows taxpayers to offset excess VAT resulting
from tax withheld by appointed VAT withholding agents against output VAT
payable in the same month.

Implication: The proposed deletion seeks to align with the Tax Procedures
Act with respect to the process of applications and approvals of refunds.
The VAT Act currently provides that excess input VAT arising from
withholding VAT credits are eligible for a refund while the Tax Procedures
Act provides for a 12-month window for a refund application for such
excess credits. The Tax Procedures Act further provides for an offset
mechanism of the approved refunds, which had been duplicated under
Section 17(5)(c) of the VAT Act.

Proposed Effective Date: 1 July 2025

Foreword Foreword
Income Tax- Tax- Tax –Pay As You
IncomeIncome Pay As You
Value Added
Income Tax- Corporation Tax
Value Added
Excise Duty
Pay As You Earn
Excise Duty
Miscellaneous
Tax Procedures
Value Added Tax Miscellaneous Fees Levies Act
Miscellaneous Stamp Duty
Corporation TaxCorporation
Transfer Pricing
Earn Earn Tax
Income Tax- Corporation Tax
Tax Fees & Levies
ActAct Fees & Levies Act Act
Tax

Zero-rated – Exempt
The Bill has proposed to amend the following items by moving them from zero-rated to standard rated:

Finance Bill 2025

Item Current rate
proposed amendment

All inputs and raw materials whether produced locally or imported, supplied to
pharmaceutical manufacturers in Kenya for manufacturing medicaments, as approved from
Exempt Zero rated
time to time by the Cabinet Secretary in consultation with the Cabinet Secretary responsible
for matters relating to health

Transportation of sugarcane from farms to milling factories. Exempt Zero rated

The supply of locally assembled and manufactured mobile phones

Exempt Zero rated

The supply of motorcycles of tariff heading 8711.60.00 (Motor vehicle with electric motor for
Exempt Zero rated
propulsion).

The supply of electric bicycles.

Exempt Zero rated

The supply of solar and lithium-ion batteries. Exempt Zero rated

The supply of electric buses of tariff heading 87.02 (Motor vehicles for the transport of ten or
Exempt Zero rated
more persons,including the driver.)

Inputs or raw materials locally purchased or imported for the manufacture of animal feeds
upon recommendation by the Cabinet Secretary for the time being responsible for Exempt Zero rated
agriculture.

Bioethanol vapour (BEV) Stoves classified under HS Code 7321.12.00 (cooking appliances
Exempt Zero rated
and plate warmers for liquid fuel).

Exempt – Standard rated

The Bill has proposed to amend the following items by moving them from exempt to standard rated:

Finance Bill 2025

Item Current rate
proposed amendment

Aircraft, spacecraft, and parts thereof Standard rated Exempt

Aircraft parts imported by aircraft operators or persons engaged in the business of aircraft maintenance will be exempt upon recommendation by the
competent authority responsible for civil aviation.

Fuels, lubricants and vehicle tyres imported or purchased for direct and exclusive use in the
Standard rated Exempt
implementation of official aid funded projects

Direction-finding compasses, instruments and appliances for aircraft. Standard rated Exempt

Taxable goods for direct and exclusive use for the construction of tourism facilities,
recreational parks of fifty acres or more, convention and conference facilities upon
recommendation by the Cabinet Secretary responsible for matters relating to recreational
parks. Standard rated Exempt

Any exemption approved before this proposed amendment comes into force shall continue
to apply until the 30th June 2026.

Taxable goods for the direct and exclusive use in the construction and equipping of
specialized hospitals with a minimum bed capacity of fifty, approved by the Cabinet
Secretary upon recommendation by the Cabinet Secretary responsible for health who may
issue guidelines for determining eligibility for the exemption. Standard rated Exempt

Any exemption approved before this proposed amendment comes into force shall continue
to apply until the 30th June 2026.

Exempt – Standard rated

The Bill has proposed to amend the following items by moving them from exempt to standard rated:

Finance Bill 2025

Item Current rate
proposed amendment

Specially designed locally assembled motor vehicles for transportation of tourists,

purchased before clearance through Customs by tour operators upon recommendation by
Standard rated Exempt
the competent authority responsible for tourism promotion, provided the vehicles are
exclusively used for transportation of tourist, licensed under the Tourism Vehicle Regime.

Goods imported or purchased locally for the direct and exclusive use in the construction of
houses under an affordable housing scheme approved by the Cabinet Secretary on the
recommendation of the Cabinet Secretary responsible for matters relating to housing. Standard rated Exempt
Any exemption approved before this amendment comes into force shall continue to apply
until the 30th June 2026.

Taxable goods, excluding motor vehicles, imported or purchased for direct and exclusive
use in geothermal, oil or mining prospecting or exploration by a company granted a
prospecting or exploration license in accordance with the Energy Act (Cap. 314), production
sharing contracts in accordance with the Petroleum Act (Cap. 308) or a mining license in
accordance with the Mining Act (Cap. 306) upon recommendation by the Cabinet Secretary
responsible for matters relating to energy, the Cabinet Secretary responsible for matters Standard rated Exempt
relating to petroleum, or the Cabinet Secretary responsible for matters relating to mining, as
the case may be.

Any exemption approved before this amendment comes into force shall continue to apply
until the 30th June 2026.

Exempt – Standard rated

The Bill has proposed to amend the following items by moving them from exempt to standard rated:
Finance Bill 2025
Item Current rate
proposed amendment

Specialized equipment for the development and generation of solar and wind energy,
including photovoltaic modules, direct current charge controllers, direct current
inverters and deep cycle batteries that use or store solar power, upon recommendation
to the Commissioner by the Cabinet Secretary responsible for matters relating to Standard rated Exempt
energy.
Any exemption approved before this amendment comes into force shall continue to
apply until the 30th June 2026.

Discs, tapes, solid-state non-volatile storage devices, “smartcards” and other media for
the recording of sound or of other phenomena, whether or not recorded of tariff heading
85.23, including matrices and masters for the production of discs, but excluding
products of Chapter 37 upon approval by the Cabinet Secretary responsible for matters Standard rated Exempt
relating to health.

Any exemption approved before this amendment comes into force shall continue to
apply until the 30th June 2026.

Weighing machinery (excluding balances of a sensitivity of 5 cg or better), of tariff

number 8423.10.00 purchased or imported by registered hospitals upon approval by
the Cabinet Secretary responsible for matters relating to health.
Standard rated Exempt
Any exemption approved before this amendment comes into force shall continue to
apply until the 30th June 2026.
Inputs and raw materials used in the manufacture of passenger motor vehicles Standard rated Exempt

Locally Manufactured passenger motor vehicles

Standard rated Exempt
© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 39
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Excise Duty Miscellaneous Fees Levies Act

Foreword Foreword
Income Tax- Tax- Tax –Pay As You
IncomeIncome Pay As You
Value Added
Income Tax- Corporation Tax
Value Added
Excise Duty
Pay As You Earn
Excise Duty
Miscellaneous
Tax Procedures
Value Added Tax Miscellaneous Fees Levies Act
Miscellaneous Stamp Duty
Corporation TaxCorporation
Transfer Pricing
Earn Earn Tax
Income Tax- Corporation Tax
Tax Fees & Levies
ActAct Fees & Levies Act Act
Tax

Standard rated - Exempt

Item Finance Bill 2025 Current Provision
proposed amendment

Tea and coffee packaging materials upon recommendation by the Cabinet Secretary for
Exempt Standard rated
matters relating to agriculture

The exemption of tea and coffee packaging materials is intended to make them
affordable and therefore promote exportation

Proposed effective date for all changes in VAT rates is 01 July 2025

“The proposed reclassification of the transportation of sugarcane from farms to

milling factories, as well as inputs or raw materials, whether locally purchased
or imported, or the manufacture of animal feeds, from zero-rated to exempt, is
likely to have a significant impact on the agriculture sector and the broader
economy. This change is expected to increase production costs for suppliers,
who may pass these costs on to farmers, ultimately leading to higher food
prices.”

Additionally, while the Government aims to promote the use of clean and
environmentally friendly energy sources, the proposed reclassification of the
supply of electric bicycles and buses under tariff heading 87.02 from zero-rated
to exempt is likely to increase their prices. This may lead consumers to revert
to fuel-propelled engines and traditional cooking methods such as charcoal,
thereby undermining efforts to advance the green economy agenda.

ForewordForeword
Income Tax- Income Tax-
Income TaxPay– As You Pay As You
Income Tax- Corporation Tax
Value AddedValue Added
Pay As You Earn
Excise Duty
Excise Miscellaneous
Duty
Value Added Tax
Tax Procedures Miscellaneous Fees Levies Act
Miscellaneous Stamp Duty
Corporation
Corporation Tax Earn
Transfer Pricing Earn Tax
Income Tax- Corporation Tax
Tax Fees & Levies Act Fees & Levies Act Act
Tax

Excise
Duty

Foreword
Foreword Income Tax-Income Tax-Income Tax Pay
Income Tax- Corporation Tax
EarnAs You Value
Value Added TaxAddedExcise
Excise
DutyDuty Miscellaneous
Tax Procedures
Fees Miscellaneous Fees Levies Act
Miscellaneous Stamp Duty
CorporationCorporation
Tax Transfer
Tax Pricing Earn Tax & LeviesAct
Act Fees & Levies Act Act

Excise Duty Harmonization of Goods Classification with EAC Tariff Code System
Change in definition of digital lenders
Proposed provision: The Bill proposes to insert subsection (3) under section 2,
Proposed provision: The Bill seeks to amend the definition of ‘digital lender’ to provide that, goods subject to excise duty will be classified in accordance with
to include a person extending credit through an electronic medium but does the East Africa Community Common External Tariff.
not include a bank licensed under the Banking Act, a Sacco society registered
under the Co-operative Societies Act or a microfinance institution licensed
under the Microfinance Act. Implication: This alignment enhances legal clarity, facilitates smoother
cross-border trade, reduces classification disputes, and reinforces regional
integration. It also places a compliance obligation on traders to adhere to
Implication: Currently, there are several applications that have not been EAC standards, promoting consistency and efficiency in tax procedures.
approved by the CBK due to its rigorous process. With this proposal, the
levying of Excise Duty on fees earned by digital lenders will not be Proposed effective date : 1 July 2025
dependent on these entities being licensed by the CBK.

Proposed effective date : 1 July 2025

Broadening of digital platform

Introduction of digital marketplace and its definition The Bill proposes to replace the term “digital platform” with the phrase “over the
internet, an electronic network, or through a digital marketplace,” thereby
The Bill proposes to introduce definition for digital marketplace as an online platform broadening the scope of the definition.
which enables users to sell goods or provide services to other users.
Implication: The expanded definition will expand the remit of those players
in the digital economy space that are subject to tax by including those that
Implication: In recent years, there has been a significant rise in economic provide digital services over the internet and electronically, in addition to
activities conducted through digital media, including online betting, gaming, those who already provide such services through the digital marketplace.
advertising, and various financial services offered by both residents and non-
residents. This proposal aims to broaden the tax base by ensuring that all This will in turn increase tax revenue through expansion of the tax base with
economic activities carried out through digital marketplaces are subject to respect to eligible players in the digital economy space. As such, these
taxation. By doing so, it seeks to enhance revenue mobilization, promote providers will be required to register and comply with excise duty on
fairness in the tax system, and align with global trends in digital economy qualifying services. However, this may translate into increased costs of the
taxation. digital services as this tax may likely to be transferred to the final consumer.

Proposed effective date : 1 July 2025 Proposed effective date : 1 July 2025

Excise Duty
Definition of non-residents
A 14-day timeline to consider Excise Duty license application
Proposed provision: The Bill seeks to define non-resident person as a
Proposed provision: The Bill proposes to introduce a 14-day timeline
person outside Kenya.
to grant or refuse to issue an applicant with an Excise license following
the provision of the required documents.
Implication: The definition expands the scope of identifiable non-
resident entities, making their income from digital transactions subject Implication: This amendment introduces time certainty with respect to
to excise duty. the licensing process. Should it become law, the proposal will
potentially reduce bureaucratic delays, benefiting businesses applying
Proposed effective date : 1 July 2025 for excise licenses. It will also foster accountability on the
Commissioner with respect to timely issuance of decisions with respect
to the applications for excise duty licenses, leading to improved
Taxation of cross-border digital services
efficiencies and ease of doing business in excisable sectors.
The Bill seeks to expand the definition of place of supply of services to
Proposed effective date : 1 July 2025
include supplies made by a non-resident person to a person consuming
those services in Kenya through the internet, electronic network or a
digital marketplace. Proposed Amendment on tax base for coal

Proposed provision: The Bill proposes a change in the tax base

Implication: This expands Kenya’s tax jurisdiction over digital and classification for coal from customs value to excisable value, aligning it
cross-border services, enabling the government to levy taxes on with other domestically taxed products.
foreign digital service providers whose services are accessed by
Kenyan consumers, thereby increasing tax revenue and promoting a Implication: Changing from customs value to excisable value allows
level playing field between local and international service providers. the government to tax both imported and locally produced coal, closing
a gap where local production might have previously not been taxed.
Proposed effective date : 1 July 2025
Proposed effective date : 1 July 2025

Excise Duty
Increase in excise duty and alignment of description with Common external tariff

Proposed excise Current excise

HS Code Description
rate rate
3919.90.90 Imported other self-adhesive plates, sheets, film, foil, 25% or KES 200 25% or KES 75
tape, strip and other flat shapes, of plastics, whether per kg whichever per
or not in rolls of tariff number, but excluding those is higher kg, whichever
originating from East African Community Partner is higher
States that meet the East African Community Rules of
Origin.

Imported printed polymers of ethylene of other plates,

sheets, film, foil and strip, of plastics, noncellular and 25% or KES 200 25% or KES 75
3920.10.90 not reinforced, laminated, supported or similarly per kg whichever per
combined with other materials of tariff number, but is higher kg, whichever
excluding those originating from East African is higher
Community Partner States that meet the East African
Community Rules of Origin.

Imported printed polymers of vinyl chloride containing

3920.43.90 by weight not less than 6% of other plates, sheets, film, 25% or KES 200
foil and strip, of plastics, noncellular and not reinforced, per kg whichever 25% or KES 75
laminated, supported or similarly combined with other is higher per
materials of tariff number, but excluding those kg, whichever
originating from East African Community Partner is higher
States that meet the East African Community Rules of
Origin.

Excise Duty
Increase in excise duty and alignment with Common external tariff

Proposed Excise
HS Code Description Current excise rate
rate

3920.62.90 Imported printed poly ( ethylene terephthalate) of 25% or KES 200 per 25% or KES 75 per
polycarbonates, alkyd resins, polyallyl esters or other polyesters KG whichever is kg, whichever
of other plates, sheets, film, foil and strip, of plastics, noncellular higher is higher
and not reinforced, laminated, supported or similarly but
excluding those originating from East African Community
Partner States that meet the East African Community Rules of
Origin.

3921.19 .90 Imported printed cellular of other plastics of other plates, sheets, 25% or KES 200 per 25% or KES 75 per
film, foil and strip, but excluding those originating from East KG whichever is kg, whichever
African Community Partner States that meet the East African higher is higher
Community Rules of Origin

4811.41.90 Printed self-adhesive paper of tariff number, but excluding those 25% of excisable 25% or KES. 150 per
originating from East African Community Partner States that value or KES. 200 kg, whichever is
meet the East African Community Rules of Origin. per kg, whichever is higher
higher.

4811.49 .00 Gummed paper and paperboard of tariff number but excluding 25% of excisable 25% or KES. 150 per
those originating from East African Community Partner States value or KES. 200 kg, whichever is
that meet the East African Community Rules of Origin. per kg, whichever is higher
higher.

Various Spirits of undenatured extra neutral alcohol of alcoholic strength KES. 500 per litre KES 10 per centiliter
exceeding 90% purchased by licensed manufacturers of of
spirituous beverages. pure alcohol

Excise Duty
Increase in excise duty and alignment with Common External Tariff

Implication
The increase of excise duty on these imported finished products is likely to raise consumer prices, reducing affordability for many households. While this
move may support the government’s goal of promoting local manufacturing under the "Buy Kenya, Build Kenya" initiative, the availability and
competitiveness of local alternatives remain a concern. Import-dependent sectors, especially SMEs, could face higher costs, potentially shrinking their
profit margins. Additionally, the risk of smuggling or misdeclaration at ports may rise as traders seek to avoid the higher tax burden. Although the policy
could generate short-term revenue gains for the government, it may also distort trade patterns and impact compliance.

Proposed effective date for all changes in Excise rates is 1 July 2025

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Finance Bill, 2025 Analysis 46
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax Procedures Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Miscellaneous Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act & LeviesFees
Act & Levies Act Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act

Tax Procedures
Act

© 2024. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 47
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax Procedures Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Miscellaneous Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act & LeviesFees
Act & Levies Act Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act

Tax ProceduresAct
Restriction of scope of payments excluded from issuing an Why did the Commissioner amend a self-assessment return?
electronic tax invoice
Proposed provision: The Bill proposes to mandate the Commissioner to include
Proposed provision: The Bill proposes to update the transactions that
reasons for the amended assessment in the notice of amended assessment.
do not require the issuance of electronic tax invoices. The proposed
provision states that an electronic tax invoice may exclude payments of
emoluments, imports, interest, transactions for accounting of Implication: The requirement for the Commissioner to provide reasons for its
investment allowances, airline passenger ticketing and payments decisions has been a long-standing legal requirement under Section 51(10) of the Tax
subject to withholding tax as a final tax. Procedure Act read together with Article 47 of the Constitution.

The Bill seeks to explicitly require the Commissioner to give reasons for amending an
assessment that has been auto-generated through the iTax system. Currently, the
Implication: The proposed amendment aims to limit transactions that
additional assessments issued through the iTax system do not provide reasons for the
do not require the issuance of electronic tax invoices by removing the
amendment and this may prejudice the taxpayer from objecting accordingly, in the
words “and similar payments” and instead include those transactions
absence of additional correspondence regarding such assessments.
that have withholding tax as a final tax. The narrowed scope of
transactions may increase the tax compliance burden for taxpayers, as
they will be required to ensure that most of their transactions are If passed into law, this provision will provide reprieve for taxpayers who will be able to
supported by tax compliance issues. lodge objections from an informed point of view.
Proposed Effective Date: 1 July 2025
Proposed Effective Date: 1 July 2025

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 48
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax Procedures Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Miscellaneous Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act & LeviesFees
Act & Levies Act Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act

Tax ProceduresAct
Reprieve for a taxpayer responsible to deduct or withhold tax.
Implication: The proposal, if enacted enables KRA to recover unpaid taxes
Proposed provision: The Bill proposes to exclude the requirement for taxpayers to seamlessly without incurring stamp duty charges in registration of the
pay the principal tax not deducted, withheld or remitted to the Commissioner for as notification with the Registrar. It makes it easier for KRA to recover unpaid
long as the recipient of the payment has accounted in full for the principal tax not taxes without further administrative burdens such as clearing with the Lands
deducted, withheld or remitted by the responsible taxpayer. Registry beforehand.

Proposed Effective Date: 1 July 2025

Implication: This provision if enacted will be a reprieve to taxpayers with

obligations to withhold tax under any tax law with such requirements from Stamp duty exemption on transfer of property registered as security for
remitting the principal tax not accounted for by them to the extent that the unpaid taxes
recipient has accounted for the tax.
Proposed Provision: The Bill proposes to exempt property transferred following
However, the penalties and interest relating to the non-compliance will still default by a taxpayer in payment of tax after receipt of notification of registration of
apply. security on property by KRA.

Proposed Effective Date: 1 July 2025

Implication: This proposal seeks to simplify enforcement and recovery by
removing a tax barrier in the recovery process.
Commissioner’s notification exempted from stamp duty
Purchasers of property sold in tax recovery efforts shall have less tax burden
.
Proposed Provision: The Bill proposes to introduce the word "stamp duty" immediately while purchasing the property thus ease the process of settling tax debts
after the word "fee" in Section 40 (2) of the TPA to exempt KRA from paying stamp duty through property transfer without incurring additional stamp duty costs.
on notifications filed by the Commissioner with the Registrar of Lands in relation to Proposed Effective Date: 1 July 2025
property of a taxpayer who defaulted in payment of tax.

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 49
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax Procedures Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Miscellaneous Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act & LeviesFees
Act & Levies Act Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act

Tax ProceduresAct
Not-so-fast for non-resident persons with tax debts in Kenya. Filing an appeal against an Assessment does not stop KRA from
issuing agency notices.
Proposed provision: The Bill proposes to empower KRA to collect taxes from
non-resident persons through persons that owe these non-residents.

Proposed provision: The Bill proposes to delete Section 42(14) (e) thus
Implication: By inserting "or a non-resident person who is subject to tax in
empowering KRA to issue notices in recovery to taxes from third parties
Kenya" throughout the subsections, the Commissioner’s power has been
owing a taxpayer despite a taxpayer appealing against an assessment
extended to require payment from persons that owe non-resident
specified in a decision of the Tribunal or Court.
taxpayers.

This means that the Commissioner may still enforce the collection of taxes
owed by these non-residents' taxpayers through engaging persons in
Kenya who may owe these non-resident taxpayers. Implication: Currently, KRA is not empowered to issue notices to
Proposed Effective Date: 1 July 2025 agents in tax recovery efforts, when the taxpayer has appealed against
the assessment in the tribunal or Court. Deletion of the requirement
implies that KRA shall be empowered to issue a notice of tax recovery
to agents even if the assessment is subject to ongoing appeal.

This broadens KRA’s enforcement toolkit, allowing earlier intervention in

recovering tax debts through agents who owe money to the taxpayer,
regardless of ongoing appeals. However, the proposal would be
conflicting with the right of an appeal granted to an aggrieved taxpayer
which guarantees the ability to fairly challenge a tax assessment within
a procedural and substantive approach.

Proposed Effective Date: 1 July 2025

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 50
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax Procedures Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Miscellaneous Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act & LeviesFees
Act & Levies Act Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act

Tax ProceduresAct
Conviction set aside for defaulting Value Added Tax Withholding Tax (VAT Exclusion of input VAT from being offset through overpaid tax
WHT) agents.
Proposed provision: The Bill proposes to amend Section 47(1) (a)(i) by deleting
Proposed provision: The Bill proposes to remove the additional 10% penalty the words "and input VAT" to remove input VAT from categories of tax to be offset
upon conviction on the amount to be withheld due to failure by the VAT withholding through overpaid tax.
agent to withhold or remit by the 5th day of the subsequent month.

Implication: The proposed deletion is a clean up since input VAT is a tax credit
Implication: Taxpayers who are appointed as withholding VAT agents are liable that is used to offset against output VAT.
for a penalty of 10% where a person does not withhold and remit withholding
VAT and an additional 10% penalty of the principal tax involved upon conviction. As currently worded, overpaid taxes could be offset against input VAT, which is
not practical since both input VAT and the overpaid taxes are credits available for
By removing the conviction aspect, this will reduce the administrative burden for utilization against VAT and other taxes respectively.
KRA as conviction would require a pronouncement by a court of law, which is a
separate procedure. Proposed Effective Date: 1 July 2025

Proposed Effective Date: 1 July 2025

Revocation of appointment of digital service tax agent

Proposed provision: The Bill proposes to revoke the Commissioner’s power to
appointment digital service tax agents.

Implication: The current provision of law was designed to operate under a

withholding mechanism where appointed withholding agents were required to
remit DST under the withholding mechanism.

From 2 January 2021, these non-resident entities have been accounting for
Digital Services Tax (DST), and now Significant Economic Presence Tax (SEPT)
under the self-assessment regime, making the requirement to appoint DST
agents redundant.

Proposed Effective Date: 1 July 2025

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 51
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax Procedures Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Miscellaneous Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act & LeviesFees
Act & Levies Act Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act

Tax ProceduresAct
Increase in timeframe for review of an application for overpaid tax Computation of time for issuance of a decision on a late objection
from 90 days to 120 days
Proposed provision: The Bill proposes to insert a new Section 51(7B) to
Proposed provision: The Bill proposes to increase the timeframe for clarify that an objection decision by the Commissioner shall be issued
determination of an overpayment of tax application by KRA from 90 days to within 60 days from the day the late objection was lodged, provided that the
120 days. Commissioner has allowed the application for the late objection.

Implication: The proposed amendment would see taxpayers Implication: The 60-day period for the Commissioner to issue an
experience delayed resolution of their overpayment claims, potentially objection decision starts running from the actual date the objection is
affecting their cash flow and financial planning. lodged, not from the original deadline. By defining the computation of time
for late objections, this minimizes confusion and disputes between
Proposed Effective Date: 1 July 2025 taxpayers and the Commissioner regarding deadlines for issuing a
decision on a late objection application.

Increase in timeframe for review of an overpayment claim subjected

to audit from 120 days to 180 days Proposed Effective Date: 1 July 2025

Proposed provision: The Bill proposes to amend Section 47(4A) by

increasing the timeframe to review an application for refund of overpaid
taxes subject to an audit by the Commissioner from 120 days to 180 days.

Implication: The proposed amendment would see taxpayers facing

extended delays before their overpayment claims are resolved, which
can negatively impact their cash flow and financial planning,

Proposed Effective Date: 1 July 2025

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 52
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax Procedures Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Miscellaneous Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act & LeviesFees
Act & Levies Act Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act

Tax ProceduresAct
KRA empowered to request personal data and trade secrets
information for integration of electronic tax systems Implication: This proposal is a clean up since Section 69 of the TPA was
repealed by the Tax Law (Amendment) Act, 2020 which provided for the
Proposed provision: The Bill proposes to allow the Commissioner to access trade publication of private rulings in two daily newspapers with a national circulation
secrets and personal data information for integration into the electronic tax which were viewed as binding on the Commissioner.
management system.
Proposed Effective Date: 1 July 2025
Implication: The proposed amendment shall result in loss of confidentiality
protection for trade secrets exposing proprietary business information potentially
Saturdays, Sundays and Public Holidays included in computation of time for
harming competitive advantage.
lodging objections and Appeals
It also poses data protection and security risks on personal data of customers, Proposed provision: The Bill proposes to include Saturdays, Sundays and Public
employees and clients. Businesses may be forced to disclose personal Holidays in computation of statutory time for lodging objections and appeals.
customer information, raising concerns about data protection, compliance with
privacy laws, and potential misuse or breaches.

The absence of confidentiality and data privacy protections could erode Implication: The proposed amendment comes barely a few months after the Tax
taxpayer trust in KRA leading to resistance or non-compliance with data Laws Amendment Act 2024 clarified that weekends and public holidays ought not
submission requirements. Additionally, the requirement for disclosure of trade to be included in computation of time for filing an appeal.
secrets data and personal data violates the Data Protection Act and Industrial
Property Act. The proposed amendment shall reduce the effective time for lodging objections
and appeals. The amendment is likely to increase risks of missed filings due to
Proposed Effective Date: 1 July 2025 shorter deadlines.

Proposed Effective Date: 1 July 2025

Alignment with the Tax Laws (Amendment) Act 2024 on grounds for refusal
of a private ruling

Proposed provision: The Bill proposes to delete Section 66 (1)(a)(iii) that states
that a Commissioner may refuse an application for a private ruling if a ruling
published under Section 69 that is in existence.

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 53
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax Procedures Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Miscellaneous Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act & LeviesFees
Act & Levies Act Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act

Tax ProceduresAct
Failure to file a tax return subject to a penalty Waiver of tax penalty and interest by the Cabinet Secretary

Proposed provision: The Bill proposes to amend Section 83(1) by inserting the Proposed provision: The Bill proposes to empower the Cabinet
words, "fails to submit a tax return or" immediately after the word, "person who" to Secretary upon recommendation by the Commissioner to waive tax
make failure to file a tax return a ground levying of a penalty by the Commissioner. penalties and interest on the following grounds:

▪ an error generated by an electronic tax system;

Implication: The proposed amendment shall ensure that taxpayers who do ▪ a delay in the updating of an electronic tax system;
not file returns entirely face the same penalties as those who file late returns.
▪ a duplication of a penalty or interest due to a malfunction of an
This proposed amendment seeks to enhance tax compliance by ensuring that electronic tax system; or
those taxpayers who do not file returns at all are subjected to penalties.
▪ the incorrect registration of the tax obligations of a taxpayer.
Proposed Effective Date: 1 July 2025

Implication: The proposed amendment is a welcome move as it will allow the

Commissioner to recommend for waiver of penalties and interest arising from
errors or malfunctions relating to an electronic tax system such as iTax or the
electronic tax management system and the erroneous registration of a tax
obligation.

It is important to highlight that penalties that arise from other instances of non-
compliance such as late payment of tax will not be eligible for a waiver
application.

Proposed Effective Date: 1 January 2026

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 54
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax ProceduresMiscellaneous
Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act Fees
Act & Levies Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act & Levies

Act

Miscellaneous
Fees & Levies Act

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 55
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax ProceduresMiscellaneous
Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act Fees
Act & Levies Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act & Levies

Act

Miscellaneous Fees & Levies Act (MFLA)

Wider application of Tax Procedures Act (TPA) provisions No More Blanket Import Declaration Fee (IDF) and Railway Development Levy
(RDL) Exemptions for aircraft, spacecraft, and parts thereof
Proposed provision: The Bill proposes to expand the framework for application of
the TPA’s provisions to fees and levies administered under the MFLA. Currently, the Proposed provision: The Bill proposes to limit the IDF and RDL exemptions
MFLA only provides for application of Section 47 of the TPA in relation to procedures currently granted to all goods and parts under HS Code Chapter 88, which covers
for refunds of the various fees and levies it governs. aircraft, spacecraft and related parts.

The proposed amendment will only grant RDL and IDF exemptions to parts under
Chapter 88 and items classified under HS Code 8802.30.00 and 8802.40.00. The
Implication: As currently drafted, the MFLA provides for application of two codes cover aeroplanes and other aircraft, of an unladen weight exceeding
Section 47 of the TPA regarding excess tax refunds with respect to 2,000 kg but not exceeding 15,000kg; and aeroplanes and other aircraft, of an
levies and fees. unladen weight exceeding 15,000 kg.

With this proposal, the provisions of the entire TPA will be applied for
purposes of administering any issues pertaining the fees and levies
charged under the MFLA such as penalties, interest, objections and Implication: The proposed amendment to the Bill seeks to narrow the IDF
refunds of these fees and levies. and RDL exemptions to only apply to spare parts under Chapter 88 and
Proposed Effective Date: 1 July 2025 aeroplanes and aircraft over 2,000 kg but below 15,000kg as well as those
over 15,000 kg.
This limitation of the exemptions could negatively impact some players in the
airline industry who will have to pay additional import taxes in the form of
1.5% RDL and 2.5% IDF if their imported aircraft are not classified under HS
Code 8802.30.00 and 8802.40.00
Proposed Effective Date: 1 July 2025

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 56
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax ProceduresMiscellaneous
Miscellaneous OtherStamp
Acts Duty
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Fees

CorporationCorporation
Tax Transfer Pricing Earn Tax Act Fees
Act & Levies Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act & Levies

Act

Miscellaneous Fees & Levies Act

Reduction in export and investment promotion levy rate for specific semi- Reduction in export and investment promotion levy rate for Iron and Non-
finished iron or non-alloy steel products Alloy Steel Bars and Rods

Proposed provision: The Bill proposes to reduce the export and investment Proposed provision The Bill proposes to reduce the export and investment
promotion levy from 17.5% to 10% of the customs value on semi-finished iron or promotion levy from 17.5% to 10% of the customs value on bars and rods of iron
non-alloy steel products containing less than 0.25% carbon, with a rectangular or non-alloy steel, hot-rolled in irregularly wound coils with a circular cross-
(including square) cross-section and a width less than twice the thickness. section measuring less than 14 mm in diameter of cross-section of less than 8
mm, as well as other similar bars and rods with a circular cross-section
measuring less than 14 mm in diameter.

Implication: The export and promotion levy was introduced through the
Finance Act, 2023 at the rate of 10% and 17.5% of the customs value Implication:. The proposed amendment to reduce the levy from
of certain specified imported products. 17.5% to 10% will benefit local industries such as construction and
The proposed reduction in the levy rate from 17.5% to 10% on semi- manufacturing that rely on imported iron and non-alloy steel bars and
finished iron or non-alloy steel will lower import costs for these rods by reducing their input costs in their respective low-margin
materials, making them more affordable for local manufacturers who sectors.
rely on such imported inputs. However, it also exposes local steel producers to much greater
However, it may also harm domestic producers of the iron and non- competition from imports, which may potentially hinder their growth if
alloy steel products due to the increased competition from foreign they are not yet competitive.
competitors. This may potentially hamper the growth of the local Proposed Effective Date: 1 July 2025
manufacturing industry.
Proposed Effective Date: 1 July 2025

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 57
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax ProceduresMiscellaneous
Miscellaneous OtherStamp
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Fees Acts

CorporationCorporation
Tax Transfer Pricing Earn Tax Act Fees
Act& Levies Act Duty Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act & Levies

Stamp
Duty Act

© 2025. KPMG Advisory Services Limited, a Kenyan Limited Liability Company and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
Finance Bill, 2025 Analysis 58
Foreword
Foreword Income Tax-Income Tax-Income TaxPay– As You Pay
EarnAs You Value AddedTax Procedures
Excise Duty Tax ProceduresMiscellaneous
Miscellaneous OtherStamp
Foreword Income Tax- Corporation Tax Pay As You Earn Value Added Tax Tax Procedures Act Excise Duty Miscellaneous Fees Levies Act

Value Added Tax Excise Duty Fees Acts

CorporationCorporation
Tax Transfer Pricing Earn Tax Act Fees
Act& Levies Act Duty Act
Income Tax- Corporation Tax Tax Procedures Act Miscellaneous Fees Levies Act

Tax Act & Levies

Stamp Duty Act

Exemption for Transfer of property during internal reorganization
Proposed provision: The Bill proposes to exempt stamp duty payment on
property transferred by a company to its shareholders as part of internal
reorganisation. To qualify for the stamp duty exemption, the following conditions
must be met:
a) The property should be transferred to shareholders in proportion to
their existing shareholding; and
b) If the property consists of shares, the shares must be in a
subsidiary of the transferring company.

Implication: Currently, stamp duty applies primarily to property transfers,

legal instruments and financial agreements specified under the Stamp
Duty Act (SDA) unless explicitly exempted under Section 117 of SDA.
Additionally, exemption can be extended to transactions that the Cabinet
Secretary responsible for matters relating to land will approve. The main
condition touching on the exemption extended by the Cabinet Secretary
needs to serve a public interest as held recently by the High Court in
Okoiti –versus- Cabinet Secretary, National Treasury & 5
others [2025] KEHC 4444 (KLR).
The proposal aims to incentivize companies that are undergoing internal
restructuring by easing the tax burden pegged on these transactions.
Additionally, the proposed requirement that transfers be proportional to
existing shareholding ensures that there will be no tax leakages that may
result from a transfer of shareholding beyond the allocation due to those
shareholders.
Proposed Effective Date: 1 July 2025

Peter Kinuthia Clive Akora

Partner and Head of Tax Partner
and Regulatory Services Tax and Regulatory Services
KPMG East Africa KPMG East Africa
T: +254 709 576 215 T: +254 720 068 088
E: [email protected] E: [email protected]

Stephen Ng’ang’a
Partner Sandeep Main
Tax and Regulatory Services Partner
KPMG East Africa Tax & Regulatory Services
KPMG East Africa
T: +254 709 576 259
E: [email protected] T: +254 709 576 177
E: [email protected]

Disclaimer

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely
information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without
appropriate professional advice after a thorough examination of the particular situation.

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