The Government of Kenya publishes a Finance Act every year to amend Kenya’s tax laws. On 26 June 2025, the President assented into law the Finance Act, 2025 (the Act).
The amendments in the Act come into effect on 01 July 2025 with the exception of the following two amendments that come into effect on 1 January 2026, that is, (a) the introduction of advance pricing agreements and (b) the amendment regarding the use of the import declaration fee (IDF) collected by the Government whereby the Government intends to use 10% of the total IDF fee collected towards measures intended to enhance revenue collection.
The Act does not contain as many changes to Kenya’s tax regime as previous iterations of the Finance Acts, such as the Finance Bill, 2024 which was withdrawn after significant opposition from Kenyans.
To download a detailed summary of the provisions of the Act, please click here. The key changes in the Act are as follows:
Income Tax Act
- Tax losses: The Act has limited the deductibility of tax losses by:
- restricting the carrying forward of tax losses to five (5) years. Previously, taxable losses could be carried forward in perpetuity. Commentary: this amendment will significantly impact taxpayers in capital intensive sectors (e.g. energy, projects, manufacturing) as it is unlikely that such taxpayers would exhaust tax losses arising from claiming investment allowances within a five (5) year period. The amendment could also impact the commercial viability of capital-intensive projects that are in the pipeline; and
- deleting the provision that allows taxpayers to deduct any capital loss realis ed against any future capital gains. Commentary: this amendment is quite punitive as it will result in taxpayers being required to pay capital gains tax on the sale of property that results in a gain even though such a taxpayer may have sold prior property for a significant capital loss.
- Taxation of the digital economy: The Act has:
- deleted the provisions relating to digital assets tax (DAT). Accordingly, DAT is no longer applicable on the transfer or exchange of digital assets. Instead, excise duty at the rate of 10% shall be applicable on the fees charged by the owner of a platform for the transfer of the digital assets. Commentary: this amendment is welcome and is a culmination of previous efforts to do away with DAT which had proven to be impractical leading to numerous challenges before courts as to its constitutionality; and
- expanded the scope of significant economic presence tax (SEPT) by deleting the exemption from SEPT that applied to non-resident persons with an annual turnover of less than Kenya Shillings five million.
- Nairobi International Financial Centre (NIFC): The Act has incentivised investment in the NIFC by:
- reducing the corporate income tax rate to 15% for the first three (3) years and to 20% for the succeeding four (4) years for start-ups certified by the NIFC;
- reducing the corporate income tax rate to 15% for the first ten (10) years and to 20% for the subsequent ten (10) years with respect to a company certified by the NIFC and that:
- invests at least Kenya Shillings three billion in the first three (3) years of operations;
- is a holding company and at least 70% of its employees in senior management are citizens of Kenya; and
- the regional headquarters of the company is in Kenya and at least 60% of the employees in senior management are citizens of Kenya.
- Introducing an exemption for dividends paid by a company certified by NIFC should such a company reinvest a sum of Kenya Shillings two hundred and fifty million (KES 250,000,000) in that year of income.
Commentary: this is a welcome move that aims to have more companies obtain NIFC certification to enjoy the benefits. However, it is not entirely clear how a company would be expected to meet the different sets of thresholds on the employment of citizens of Kenya.
- Investment allowances on capital expenditure incurred on acquisition of spectrum licenses. The Act has expanded the scope of items on which investment allowances could be claimed to include the capital expenditure incurred on the acquisition of a spectrum license by a telecommunication operator. Investment allowances will be claimable at the rate of 10% per year. Where the amount had been incurred prior to 01 July 2025, investment allowances shall be claimable on the yet to be amortised portion over the remaining useful life of the spectrum license.
- Changes affecting betting and gaming. Punters engaged in betting and gaming will now be subject withholding tax at the rate of 5% on withdrawals, that is, the amount withdrawn by a customer from their betting or gaming wallet. Previously, punters were subject to withholding tax on winnings.
Commentary: the constitutionality of this provision is likely to be challenged considering that withholding tax would be applicable even where a punter has not won any amount and is simply withdrawing the balance of the funds loaded into their betting or gaming account.
- Income Tax and withholding tax exemptions: the Act has:
- restricted the persons entitled to exemption from capital gains on the transfer of property within a special economic zone to only licensed special economic zone developers, enterprises or operators. Commentary: previously, a gain realised by any person (not only a licensed person) on the transfer of property within a special economic zone was arguably exempt from CGT due to the drafting of the Act. However, this amendment makes it quite clear that only licensed persons may benefit from the CGT exemption; and
- exempted from Kenyan withholding tax, any amount paid by a national carrier to a non-resident person for specialised services that are not available in Kenya. Commentary: the exemption is intended to support the national carrier since the national carrier would most likely have been required to bear the withholding tax amount due to the existence of gross-up provisions.
- Exemption relating to family companies: the Act has exempted from CGT the transfer of property to a company where the transferor is the sole shareholder. Commentary: this is a welcome move as it will grant taxpayers’ flexibility in the manner in which they structure their personal affairs.
- Expenditure incurred in the construction of sports facilities on public grounds: the Act provides that amounts incurred in the construction of sports facilities on public grounds shall be tax deductible. Commentary: the amendment is welcome though further guidelines are required for the full benefit of the provision to be actualised.
Value Added Tax Act
- Imposition of VAT at the rate of 16% on previously exempt items. The Act has deleted certain VAT exemptions granted to key sectors such as manufacturing and healthcare. These products would be subject to VAT at the standard rate which would increase the cost for consumers. Key examples include:
- taxable goods imported or purchased for direct and exclusive use in geothermal, oil or mining prospecting or exploration (this exemption was not available to motor vehicles imported for such purposes);
- taxable goods imported as raw materials and comprising of woven fabrics and textile articles falling under HS Code 5407 and 6309 for use in the manufacture of textile products in Kenya; and
- discs and “smartcards” fallings under tariff heading 85.23 and utilized to access healthcare services.
Commentary: the supplies that are now subject to VAT relate to the energy sector, healthcare sector and manufacturing sector. The amendment therefore contradicts the Government’s stated objective of providing support to these critical sectors. It should be noted that for persons who had already been granted the VAT exemption for the importation of goods for use in geothermal, oil or mining exploration shall continue to be enjoy the VAT exemption until 30 June 2026.
- Exemption from VAT. The Act has exempted from VAT (a) mosquito repellent, (b) inputs, machinery and raw materials used in the manufacture of raw materials upon approval and (c) taxable services supplied to manufacturers of mosquito repellents upon approval. This amendment is clearly aimed at incentivising the production of mosquito repellent in Kenya.
- VAT refund for bad debts: The Act has reduced the timeline allowing taxpayers to apply for refund of VAT paid if the taxpayer has not received payment from the buyer to two (2) years from the date of the supply instead of the current three (3) years. This is a welcome move for taxpayers.
- The Act now subjects to value added tax (VAT) goods or services that are exempt or zero-rated, if the taxpayer disposes or uses the goods or services in a manner inconsistent with the purpose of the VAT exemption or zero-rating.
Excise Duty Act
- Non-residents digital supplies subject to excise duty: The Act has expanded the scope of excise duty charged on digital platforms to include services offered by non-resident persons over the internet, an electronic network or through a digital marketplace to consumers in Kenya.
- Changes to the betting and gaming sector. The Act has introduced amendments to the betting and gaming sector as follows:
- reduced the rate of excise duty on betting and gaming from 15% to 5%; and
- provided that excise duty shall be applicable on the amount deposited. Previously, excise duty applied on amount wagered.
Commentary: this amendment is consistent with the amendment in the Income Tax Act. However, the question of the constitutionality of the amendment remains considering that excise duty would be applicable even before the punter engaged in any betting or gaming activity.
Miscellaneous Fees and Levies Act
- Exemption from railway development levy (RDL) and import declaration fee (IDF) on inputs for the manufacture of mosquito repellents. The Act has exempted from RDL and IDF inputs, raw materials and machinery used in the manufacture of mosquito repellents upon recommendation of the Cabinet Secretary responsible for matters relating to health. Commentary: this is a welcome move for persons engaged in the local manufacture of mosquito repellents.
- New items subjected to export promotion levy. The Act has expanded the scope of items subject to the export promotion levy to now include among others (a) ceramic products such as tiles, sinks, and wash basins that will be subject to the levy at the rate of 3% of the customs value, and (b) iron and non-alloy steel in ingot form that will be subject to the levy at the rate of 17.5% of the customs value.
Tax Procedures Act
- Enforcement against non-residents: The Act has amended KRA’s power to issue agency notices by extending its scope beyond resident taxpayers to also include non-resident persons who are subject to tax in Kenya.
Commentary: this means that where a non-resident person subject to tax in Kenya owes taxes, the KRA could now require that resident persons who hold monies owing to such a non-resident person remit such an amount to the KRA.
- Refund timelines: The Act has enacted amendments that collectively lengthen the statutory timelines within which the KRA must process refund and offset application.
