Ruto formally enacts Finance Act, as KRA braces for Sh2.75 trillion income assessment challenge
Unleashing the New Tax Landscape: A Fresh Look at the Finance Bill 2025
President William Ruto has pens down the Finance Bill 2025, ushering in a wave of changes in the realm of tax administration. This shakeup aims to fortify government revenue against mounting public debt and economic pressures, while minimizing the sting of tax increases seen in the tumultuous year of 2024.
Bolstered by the遗 compte of widespread Gen Z protests last June, the government has carefully crafted measures that preserve peace and cooperation with the public. Here's the skinny on what's coming down the pipeline:
Embrace Tax Reliefs Easily with New Employer Obligations
Say goodbye to the bureaucratic hoops that plagued employees, thanks to a provision in the Bill that mandates employers to apply all applicable tax reliefs, deductions, and exemptions automatically. This change ensures everyone benefits equitably from tax reliefs, easing the tax burden on salaried workers and instilling trust in the system.
The Rise and Shine of Tax-Exempt Subsistence Allowance
A fresh wave of relief spills over salaried employees who receive daily subsistence allows as part of their salary. The daily tax-exempt subsistence allowance surges from KSh 2,000 to a juicy KSh 10,000, providing a major respite to many workers and breathing fresh air into the system.
Pension and Retirement Gratuity Go Tax-Free
The financial well-being of retirees gets a much-needed boost as pension and retirement gratuity payments receive full tax exemption from now on. This step aims to encourage savings during employment and promote financial stability in retirement.
Startups and Majors Rejoice: Lower Corporate Tax Rates Are Here
The Finance Bill 2025 paves the way for startups to start strong, with a reduced corporate tax rate of 15% for the initial three years of operation. Additionally, substantial investors dropping KSh 3 billion or more into the economy will enjoy the same reduced rate for an impressive ten years, stimulating investment and accelerating economic growth.
Telecom Investment Soars with Tax Exemptions
The Finance Bill 2025 introduces fresh incentives for the telecommunications industry. To promote investment in digital infrastructure, the Bill grants tax exemptions on investment allowances related to the acquisition of spectrum licenses and the use of fiber optic cables by telecom operators. These breaks in taxes translate to reduced operating expenses for these companies, eventually promoting better service delivery in the sector.
Expanding the Digital Market's Tax Base
The Finance Bill 2025 takes steps to modernize the tax framework on digital transactions. Non-residents earning revenue through digital platforms in Kenya are now bound to pay income tax. Meanwhile, the digital assets tax has been disbanded, replaced with a 5% excise duty on transaction fees charged by digital asset providers.
These reforms mainly focus on streamlined administration, fiscal improvements, and targeted tax incentives rather than introducing new taxes, striking a delicate balance between spurring economic growth and maintaining public harmony.
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[1] CapitalFM[2] Standard Digital[3] Business Daily Africa[4] Nation[5] Kenya New Agency
In the context of the Finance Bill 2025, intended to ease economic pressures, salaried workers can expect a significant boost in the daily tax-exempt subsistence allowance, rising from KSh 2,000 to KSh 10,000. Additionally, the financial well-being of retirees is bolstered with the full tax exemption of pension and retirement gratuity payments.
The bill presents a tax-friendly environment for both startups and large corporations, offering a reduced corporate tax rate of 15% for the initial three years of operation for startups, and for substantial investors dropping KSh 3 billion or more into the economy. Furthermore, the telecommunications industry stands to benefit from tax exemptions on investment allowances related to the acquisition of spectrum licenses and the use of fiber optic cables.
