Kenya’s Finance Bill 2025, recently tabled in Parliament, introduces a wave of proposed amendments to the Income Tax Act aimed at modernizing outdated laws, widening the tax base, especially in the digital economy, and boosting compliance across sectors.

Both individuals and businesses are expected to experience the impact of these reforms, which touch on areas ranging from pensions and travel allowances to mortgage relief and PAYE compliance.

— The bill proposes a significant increase in the tax-free daily travel allowance for private sector employees from KSh 2,000 to KSh 10,000 when on official duty away from their usual workplace.

This includes subsistence, travel, and entertainment costs.

— Pension laws are set to become gender-neutral by replacing the term “husband” with “spouse,” ensuring that both male and female partners are equally acknowledged in pension benefit entitlements.

— Pension income tax exemptions introduced in 2024 are clarified in the new bill, confirming that both lump-sum and periodic pension payments are fully exempt from income tax.

It also makes clear that gratuity payments from public and private pension schemes are not subject to tax.

— Withholding tax provisions have been revised to include supplies to public entities and the sale of scrap, categories already introduced in 2024 but previously omitted from the formal law.

— The Significant Economic Presence (SEP) tax, originally aimed at digital marketplaces, is being expanded to cover all forms of online income.

The bill also removes the existing KSh 5 million threshold for non-resident taxpayers, aiming to improve compliance and limit tax avoidance in the growing digital sector.

— The Minimum Top-Up Tax, already in force, lacked a specified due date.

The new proposal now sets the payment deadline as the end of the fourth month following a company’s financial year-end.

— Investment deductions will now cover costs related to building public sports facilities.

However, accelerated deductions will be limited to licensed businesses operating in Special Economic Zones to prevent abuse.

Additionally, businesses will be permitted to deduct 100% of costs for low-value items like linen, utensils, and tools in the year of purchase.

— Tax relief on mortgage interest, currently limited to home purchases, will be extended to cover loans taken for constructing residential homes.

The annual relief cap remains at KSh 360,000.

— Foreign shipping businesses will now be subject to withholding tax on income earned from operations in Kenya.

Tax withheld must be remitted within five working days of deduction.

— Employers will be required to apply all applicable tax reliefs and exemptions automatically when calculating employees’ PAYE to avoid over-taxation.

The obligation to issue physical PAYE certificates is also being scrapped as part of a shift toward digital tax systems.

In addition to the core amendments, the bill separately proposes increasing the Fringe Benefit Tax (FBT) from 9% to a flat 30%, aligning it with the corporate income tax rate.

This rate would apply to non-cash benefits such as company vehicles and employee loans, replacing the existing system that ties the tax to prevailing market lending rates.

The Finance Bill 2025 signals Kenya’s intent to tighten revenue collection, embrace gender equality in financial legislation, and bring tax policy in step with the realities of a fast-evolving digital and global economy.