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Post Reply: National Assembly Passes Finance Bill 2025, Paving Way for Sh24 Billion Revenue Boost

<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 June 20, 2025, 9:00 am</div><div id="pl-6467"  class="panel-layout" ><div id="pg-6467-0"  class="panel-grid panel-no-style" ><div id="pgc-6467-0-0"  class="panel-grid-cell"  data-weight="1" ><div id="panel-6467-0-0-0" 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="0 0 []">The National Assembly of Kenya has unanimously passed the Finance Bill 2025, a critical legislative step to fund the government’s KSh 4.29 trillion budget for the 2025/2026 financial year. The bill, officially titled the Finance Bill (National Assembly Bill No. 19 of 2025), now awaits President William Ruto’s assent to become law. Once enacted, the Finance Act 2025 is expected to raise KSh 24 billion in new revenue through a series of tax reforms and policy measures aimed at boosting fiscal stability while addressing public concerns.</p>
<h3 dir="ltr"><span style="text-decoration: underline;"><em><strong>Key Highlights of the Finance Bill 2025</strong></em></span></h3>
<p dir="ltr">The Finance Bill 2025 introduces several reforms designed to streamline tax policies, promote equity, and enhance revenue collection. The bill was passed following extensive deliberations and public participation, with significant amendments reflecting the input of Kenyan citizens and stakeholders. Below are some of the key provisions and changes:</p>
<h4 dir="ltr"><strong>1. Removal of Controversial Data Access Clause</strong></h4>
<p dir="ltr">One of the most contentious aspects of the initial draft, Clause 52, which proposed repealing Section 59A(1B) of the Tax Procedures Act, was dropped. This clause would have granted the Kenya Revenue Authority (KRA) unrestricted access to personal and financial data, including M-Pesa transactions, raising widespread privacy concerns. The Finance and Planning Committee, chaired by Molo MP Kuria Kimani, argued that the clause violated Article 31(c) and (d) of the Constitution, which guarantees the right to privacy. Instead, the existing Section 60 of the Tax Procedures Act, which allows data access through judicial warrants, was deemed sufficient.</p>
<h4 dir="ltr"><strong>2. Retention of Tax Incentives for Key Sectors</strong></h4>
<p dir="ltr">The National Assembly rejected proposals to eliminate the 15% corporate tax rate for companies engaged in local motor vehicle assembly and those constructing at least 100 residential housing units. This decision aims to support the manufacturing and housing sectors, which are critical to Kenya’s economic growth. Additionally, the Sh500 excise duty per litre on Extra Neutral Alcohol (ENA) for licensed spirituous beverage manufacturers was retained, providing relief to an industry facing rising taxation.</p>
<h4 dir="ltr"><strong>3. Pension Tax Exemptions</strong></h4>
<p dir="ltr">In a move to simplify pension taxation, MPs supported a full tax exemption for all pension payments, whether received as lump sums or instalments. This change eliminates redundant provisions and provides clarity for retirees, ensuring greater financial security.</p>
<h4 dir="ltr"><strong>4. Significant Economic Presence Tax (SEPT) Expansion</strong></h4>
<p dir="ltr">The bill expands the definition of Significant Economic Presence Tax (SEPT) to include websites and electronic networks beyond digital marketplaces. However, MPs rejected a proposed Sh5 million threshold, citing potential revenue leakage and enforcement challenges for the KRA. This change aims to capture more revenue from digital services while ensuring compliance.</p>
<h4 dir="ltr"><strong>5. Retention of Zero-Rated Status for Essential Commodities</strong></h4>
<p dir="ltr">The National Assembly rejected the Treasury’s attempt to reclassify certain commodities from zero-rated to exempt status. Items such as locally assembled mobile phones, motorcycles, electric bicycles, solar batteries, electric buses, animal feed inputs, and bioethanol vapour stoves will retain their zero-rated status, ensuring affordability for consumers and supporting local industries.</p>
<h4 dir="ltr"><strong>6. Rejection of PAYE Tax Band Expansion</strong></h4>
<p dir="ltr">Lawmakers also rejected a proposal to expand Pay-As-You-Earn (PAYE) tax bands to 10%, 17.5%, 25%, 27.5%, and 30%, with provisions allowing the Treasury Cabinet Secretary to adjust rates by up to 10% every three years for inflation. This decision was made to protect Kenyan workers from increased tax burdens.</p>
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<p dir="ltr">The passage of the Finance Bill 2025 comes a year after the controversial Finance Bill 2024, which sparked nationwide protests and resulted in President Ruto withholding assent due to public outcry. The 2024 protests, driven by concerns over revenue-raising measures that increased the cost of living, led to significant unrest, with reports of fatalities during demonstrations. Learning from this experience, the government emphasized public participation in the 2025 bill, incorporating amendments based on feedback from citizens and stakeholders.</p>
<p dir="ltr">The Finance and Planning Committee, led by Kuria Kimani, played a pivotal role in shaping the bill. The committee’s report, which informed the final amendments, prioritized balancing revenue generation with protecting Kenyan workers and businesses from excessive taxation. Treasury Cabinet Secretary John Mbadi outlined that the bill aims to eliminate ambiguities in tax laws, promote equity, and support the government’s KSh 4.29 trillion budget, which will be financed through revenues, loans, and grants.</p>
<p dir="ltr">The passage of the Finance Bill 2025 has elicited mixed reactions. Posts on X reflect public sentiment, with some users praising the government for listening to concerns and dropping the data access clause. For instance, one user noted, “Public participation on the #FinanceBill2025 happened. You spoke, and you were heard,” highlighting the impact of citizen engagement. Others, however, expressed concerns over reductions in allocations for critical sectors like education, agriculture, and healthcare, as well as changes to VAT status for raw materials and essential goods.</p>
<p dir="ltr">Critics, including some X users, have raised alarms about the potential impact on the cost of living, with one post mentioning a “Neonatal (newborns) tax” and an 18% VAT on essentials like milk, bread, and ugali. However, these claims appear speculative and are not supported by the official provisions of the bill, indicating the need for caution when interpreting social media narratives.</p>
<p dir="ltr">The Finance Bill 2025 now heads to President William Ruto for assent. Once signed into law, it will guide tax policies and revenue collection for the 2025/2026 financial year, effective from July 1, 2025. The government has emphasized that the bill aligns with its broader economic agenda, including investments in education, agriculture, and infrastructure, as articulated by President Ruto during discussions on the 2024 bill.</p>
<p dir="ltr">The successful passage of the bill marks a significant milestone in Kenya’s fiscal planning, but its implementation will be closely watched by citizens and stakeholders. As the government seeks to balance revenue mobilization with economic relief, the Finance Act 2025 will play a crucial role in shaping Kenya’s economic trajectory in the coming year.</p>
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