The Finance Act 2025 Kenya was assented to by the President on 26 June 2025, setting in motion a series of tax changes and KRA updates that amend key pieces of legislation, including the Income Tax Act (ITA), the Value Added Tax Act (VAT Act), the Excise Duty Act, the Tax Procedures Act, and the Miscellaneous Fees and Levies Act.
These Kenya tax law updates will significantly impact compliance, reporting, and planning for individuals and businesses across sectors. Below is a consolidated summary of the retained proposals from the Finance Bill 2025 as enacted in the Finance Act 2025, categorized by tax type with the rationale and expected impact. Where applicable, effective dates are highlighted.
Income Tax / Corporate Tax Kenya
| Provision | What Was Proposed (Finance Bill) | What Was Retained (Finance Act 2025 Kenya) | Rationale & Business Impact |
|---|---|---|---|
| Expanded Scope of Royalty Definition | Extend definition to include software licensed with recurring payments. | Retained. | Broadens the tax base by classifying recurring software license fees as royalties subject to withholding tax in Kenya. |
| Advance Pricing Agreements (APA) | Introduce APA regime under Section 18G. | Enacted as proposed. | Provides certainty on transfer pricing in Kenya, reduces audit risks for multinationals. |
| Definition of Related Person | Include marital and family relationships. | Implemented in Section 2. | Expands related-party transaction rules under transfer pricing. |
| Repeal of Minimum and Turnover Tax | Remove Sections 12D and 12F. | Fully repealed. | Responds to litigation challenges; supports SMEs in Kenya. |
| Digital Marketplace Income | Expand taxation of digital services. | Implemented via Section 12E. | Strengthens Kenya digital services tax framework by covering global platforms serving Kenyan users. |
| Withholding Tax on Betting Withdrawals | Apply WHT on betting wallet withdrawals. | Enacted under Sections 10 & 35. | Ensures tax is aligned with realized winnings in the Kenya betting and gaming industry. |
| Capital Gains Tax Exemption – SEZ & NIFC | Exempt intra-SEZ/NIFC transfers. | Implemented under First Schedule. | Encourages investment in Special Economic Zones (SEZs) and the Nairobi International Financial Centre (NIFC). |
| Fringe Benefit Tax Clarification | Link FBT rate to corporate tax rate. | Reflected in Third Schedule. | Simplifies administration of fringe benefits tax in Kenya. |
| Dividend Assessment Filing | Require return on dividends from untaxed profits. | Enacted. | Strengthens enforcement of corporate tax compliance in Kenya. |
Value Added Tax (VAT Kenya)
| Provision | What Was Proposed | What Was Retained (Finance Act 2025 Kenya) | Rationale & Business Impact |
|---|---|---|---|
| Time Limit for VAT Refund Claims | 12-month deadline for claiming input VAT. | Enacted under Section 17(5). | Promotes discipline in VAT refund claims in Kenya and enhances KRA audits. |
| Clawback on Exempt/Zero-Rated Goods | VAT imposed if misused. | Implemented in new Section 66A. | Prevents misuse of VAT exemptions in Kenya and protects integrity of targeted reliefs. |
| Removal of VAT Exemption for Certain Projects | Delete Para. 112 and 128 exemptions. | Retained with transition until June 2026. | Gradual phase-out of exemptions reduces disruption for ongoing projects. |
| VAT Relief on Mosquito Repellents | Zero-rate repellents; exempt inputs. | Enacted. | Supports public health through affordable mosquito prevention in Kenya. |
Excise Duty Kenya
| Provision | What Was Proposed | What Was Retained (Finance Act 2025 Kenya) | Rationale & Business Impact |
|---|---|---|---|
| Excise Duty on Betting/Gaming | Reduce from 15% to 5% on wallet deposits. | Retained in Sections 4A–4D. | Encourages compliance in the Kenya betting and gaming tax regime. |
| Excise Duty on Imported Inputs | Duty on tiles, kraft paper, ceramics, glass. | Fully enacted. | Protects Kenya manufacturing sector by discouraging cheap imports. |
| Excise Duty on Virtual Assets | 10% duty on crypto/virtual asset fees. | Enacted. | Expands tax base to cryptocurrency and digital asset service providers in Kenya. |
| Excise Exemption for Microdistillers | Compliance relief for small-scale distillers. | Retained. | Formalizes rural alcohol production in Kenya. |
Miscellaneous Taxes & Procedures
| Provision | What Was Proposed | What Was Retained (Finance Act 2025 Kenya) | Rationale & Business Impact |
|---|---|---|---|
| Penalty Waiver for System Errors | Empower Commissioner to waive penalties caused by KRA IT failures. | Implemented in Section 89(5A). | Provides fair recourse in KRA compliance Kenya. |
| Certificate of Origin Requirement | Mandatory at import clearance. | Enacted in new Section 44A. | Prevents misuse of trade agreements and strengthens Kenya customs compliance. |
| Extension of Refund Period | From 90 to 120 days. | Implemented in Section 47. | Provides KRA adequate time to verify tax refund claims in Kenya. |
| Export Promotion Levy | 3%–17.5% levy on selected imports (steel, ceramic, sanitaryware). | Implemented. | Supports local industries while raising import costs through export promotion levy Kenya. |
Disclaimer
This Finance Act 2025 Kenya summary is for general informational purposes only and does not constitute legal, financial, or regulatory advice. For personalized guidance on Kenya tax compliance, VAT refunds, KRA audits, or corporate tax planning, contact us at enquiries@mgkconsult.co.ke or visit www.mgkconsult.co.ke to book a consultation.