The Cabinet has approved the 2025 Finance Bill seeking to raise revenue for the 2025/26 budget, saying the initial budget estimates of KSh4.3 trillion will undergo “substantial revisions” before being tabled in Parliament.
- •The Bill is part of sweeping budget realignments targeting a sharper fiscal deficit of 4.5% of GDP for the 2025/26 financial year, down from 5.1% the year prior and 5.3% in 2023/24.
- •In a dispatch, the government said this year’s bill will minimise tax-raising measures and instead focus on closing loopholes and enhancing efficiency, including addressing loopholes that have historically been exploited to siphon funds from public coffers, such as inflated tax refund claims.
- •Key provisions include streamlining tax refund processes, sealing legal gaps that delay revenue collection, and reducing tax disputes by amending the Income Tax Act, VAT Act, Excise Duty Act, and the Tax Procedures Act.
The Bill proposes critical changes to support small businesses, allowing them to fully deduct the cost of everyday tools and equipment in the year of purchase, thereby eliminating unnecessary delays in accessing tax relief.
“In addition, retirees will benefit significantly as all gratuity payments, whether in public or private pension schemes, will now be fully tax exempt, ensuring dignity for Kenya’s senior citizens after retirement,” the Cabinet said.
“Employers will also be required to automatically apply all eligible tax reliefs and exemptions when calculating Pay As You Earn (PAYE) taxes for employees. Currently, many employers omit these reliefs, forcing employees to seek refunds from the Kenya Revenue Authority.”
Although the dispatch did not provide specifics of how extensive the downward revision of expenditures will be, the underlying goals of reducing the fiscal deficit to 2.7% while keeping tax raising measures at a minimum will likely inform the cuts.
“These adjustments are part of broader austerity measures designed to strengthen fiscal discipline, reduce public debt vulnerabilities, and create the fiscal space necessary to deliver essential public goods and services,” the dispatch added.
