The approval of the Finance Bill, 2025 by Kenya’s Cabinet marks a significant shift in the government’s fiscal strategy, emphasizing reform over new taxation after the turmoil surrounding the 2024 bill, which was withdrawn following violent protests.
The bill targets tax evasion and inflated refund claims, aiming to recover lost revenue without introducing major new taxes.
Amendments to the Income Tax Act, VAT Act, Excise Duty Act, and Tax Procedures Act seek to simplify administration and reduce fraud.
The Full deduction of tools and equipment costs in the year of purchase, shall improve liquidity for SMEs. Gratuity payments (both public and private pensions) will no longer be taxed, benefiting retirees.
Employers must now apply the ‘Pay as You Earn’ (PAYE) reliefs automatically, reducing bureaucratic hurdles for employees seeking refunds. The bill aligns with Kenya’s plan to cut the ‘fiscal deficit to 4.5% of GDP’ (from 5.1% in 2024/25).
To avoid past mistakes, that led to the 2024 Finance Bill being scrapped after youth-led protests (including the ‘June 25 Parliament invasion’) over new taxes, the 2025 version appears more cautious, focusing on efficiency rather than new levies.
The reforms also support Ruto’s Bottom-Up Economic Transformation Agenda, emphasizing pro-business and pro-retiree measures.
Other Cabinet Approvals include; Public Finance Management (Amendment) which mandates County Emergency Funds for disaster response.
Judges Retirement Benefits Bill which aims to strengthen the judicial independence and Healthcare Projects.
The bill moves to Parliament, where it will face scrutiny amid lingering public skepticism after the 2024 protests.
The government must balance fiscal discipline with public acceptability, any perception of hidden tax burdens could reignite opposition.
The Finance Bill, 2025 signals a more cautious approach by the Ruto administration, prioritizing tax system efficiency and targeted reliefs over broad-based tax hikes. However, its success hinges on Parliament’s approval and public reception, especially after last year’s upheaval.
If passed smoothly, it could help stabilize Kenya’s finances without triggering another wave of protests.
nyanzadaily.co.ke
