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Post Reply: Finance Bill 2025: Hidden Taxes and Budget Cuts Spark Concern

<blockquote><div class="quotetitle">Quote from <a class="profile-link highlight-moderator" href="https://lawguide.co.ke/understanding-law/legal-forum/profile/lawyer/">Lawyer</a> on May 15, 2025, 4:28 am</div><div id="pl-5633"  class="panel-layout" ><div id="pg-5633-0"  class="panel-grid panel-no-style" ><div id="pgc-5633-0-0"  class="panel-grid-cell"  data-weight="1" ><div id="panel-5633-0-0-0" class="so-panel widget widget_sow-editor panel-first-child panel-last-child" data-index="0" data-style="{&quot;background_image_attachment&quot;:false,&quot;background_display&quot;:&quot;tile&quot;,&quot;background_image_size&quot;:&quot;full&quot;,&quot;background_image_opacity&quot;:&quot;100&quot;,&quot;border_thickness&quot;:&quot;1px&quot;}" ><div
			
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	<p dir="ltr" data-pm-slice="1 1 []">The 2025 Finance Bill has stirred debate as the government aims to fund a projected Sh4.2 trillion budget for the 2025/26 financial year while addressing public backlash over punitive taxation. Following a cabinet directive on April 29, 2025, at State House, all government ministries have been ordered to slash budgets by Sh100 billion to ease the tax burden on Kenyans, a response to the violent protests that erupted against the rejected Finance Bill 2024, which saw parliament stormed by Gen Z demonstrators on June 25, 2024. The bill, described as “friendlier” than its predecessor, seeks to minimize new taxes and enhance tax administration efficiency. However, it introduces measures that could raise the cost of consumer goods by scaling down VAT exemptions and removing them in some cases. A significant change shifts the authority to grant VAT exemptions from the Cabinet Secretary for the National Treasury to the National Assembly, aligning with its constitutional power over public funds.</p>
<h3 dir="ltr"><span style="text-decoration: underline;"><strong>Key Provisions of Finance Bill 2025</strong></span></h3>
<p dir="ltr"><strong>A. Streamlined Tax Refunds and Dispute Resolution</strong>: The bill proposes amendments to the Income Tax Act, VAT Act, Excise Duty Act, and Tax Procedures Act to expedite tax refunds, seal loopholes delaying revenue collection, and reduce tax disputes.</p>
<p dir="ltr"><strong>B. Support for Small Businesses</strong>: Small businesses will benefit from immediate tax deductions for everyday tools and equipment, eliminating delays in accessing relief.</p>
<p dir="ltr"><strong>C. Tax-Free Gratuity for Retirees</strong>: Gratuity payments in public and private pension schemes will be fully tax-exempt, offering significant relief to retirees.</p>
<p dir="ltr"><strong>D. Digital Economy Taxation</strong>: The bill enhances taxation of the digital economy, including a reduced digital asset (crypto) tax from 3% to 1.5% and AI-driven tax collection methods to improve compliance.</p>
<p dir="ltr"><strong>E. Fiscal Deficit Reduction</strong>: The government aims to lower the budget deficit to 4.5% of GDP through expenditure cuts and enhanced tax compliance, avoiding new taxes but cracking down on evasion.</p>
<p dir="ltr">The Sh4.2 trillion budget, initially set at Sh4.263 trillion, has been revised downward twice—first by Kshs. 66.2 billion in February 2025 and now by an additional Kshs. 100 billion. This reflects President William Ruto’s administration’s focus on expenditure rationalization and mobilizing revenue without overburdening citizens. The cabinet emphasized closing tax expenditure loopholes historically exploited to siphon public funds. The Finance Bill 2025 follows the approval of the Budget Review and Outlook Paper (BROP), which guides tax measures formulated by the National Treasury and Kenya Revenue Authority (KRA). The draft bill was submitted to the cabinet by April 18, 2025, and to the National Assembly by April 29, 2025, with the budget statement scheduled for June 12, 2025. The bill is expected to be law by July 1, 2025, in line with the Public Finance Management Act and a court ruling mandating timely enactment.</p>
<p dir="ltr">While the government touts relief measures, posts on X highlight mixed sentiments. Some praise the absence of new taxes and reliefs like tax-free pensions, but others warn of “hidden taxes” through VAT changes that could increase consumer goods’ costs. @citizentvkenya noted on May 2, 2025, that substituting new taxes with reliefs might still raise living costs, echoing public concerns about affordability amid inflationary pressures. The bill’s focus on digital economy taxation, including software royalties and a unified “related person” definition for tax clarity, has drawn attention from analysts like PKF and RSM Kenya, who note its alignment with global best practices. However, the five-year cap on tax loss carryforwards could impact businesses recovering from losses.</p>
<p dir="ltr">Once submitted to the National Assembly, the bill undergoes scrutiny by the Parliamentary Budget Office to ensure alignment with the cabinet’s fiscal framework and the Division of Revenue Act. Public participation, mandated by Article 118 of the Constitution, will shape the final version before the National Assembly votes by June 30, 2025. If approved, the bill is sent to President Ruto for assent, though he may return it with recommendations for changes.</p>
<p dir="ltr" data-pm-slice="1 1 []">As Kenya navigates economic challenges, including a public debt at 68% of GDP, the Finance Bill 2025 aims to balance revenue needs with public discontent. The government’s austerity measures, starting with cuts to the presidency’s budget, signal a commitment to fiscal discipline. However, the removal of VAT exemptions and potential price hikes for consumer goods remain contentious, likely fueling further public debate as the bill progresses through parliament.</p>
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