Thread by @PolicyNextgen

EXPLAINER

Hello Folks! In line with article 210 of the Constitution of Kenya and section 40 of the Public Finance Management Act 2012, the National Treasury prepared the Finance Bill 2025 and submitted it to the National Assembly. Today, we delve into its key highlights 🧵

1. AMENDMENTS TO THE INCOME TAX ACT:

✅ The Significant Economic Presence Tax (SEPT) - This is a tax applicable to non residents who derive income from Kenya over a digital marketplace. This is not a new tax altogether as it was first proposed in the Finance Bill 2024

and subsequently passed under the Tax Laws Amendment Act 2024. It came to replace the Digital Services Tax that operated under the Finance Act 2023. The key difference is that this proposal seeks to delete the Ksh. 5,000,000 turnover required to be subject to this tax.

This means that non resident entities will have compliance challenges and high administrative costs.

✅Scrapping of the preferential Income Tax of 15% to Affordable Housing Developers and Local Car Manufacturers - The preferential income tax for housing developers was introduced in 2017 for the Affordable Housing Programme under the Big Four Agenda.

As the Affordable Housing Fund is now in place, this Programme has become obsolete. It's also likely that both preferential taxes did not yield the expected benefits.

✅ Increase in deductible per diem raised from Ksh. 2,000 to Ksh. 10,000 - This move seeks to level the playing field between civil servants and those in the private sector. It also factors in inflation and its effect on wages.

2. Tax Procedures Act;
✅Requirement to integrate electronic data system with KRA monitoring and reporting system -
This a contentious provision first introduced in the Finance Bill 2024. It raised privacy concerns.

However, it was incorporated in the Tax Laws Amendment Act with an exception to personal data of customers collected in the ordinary cause of business and trade secrets. This proposal seeks to draw back on this therefore raising privacy concerns again.

✅ Waiver of interest and penalties due to system errors-
The Cabinet Secretary shall henceforth have the power to waive interest and penalties accruing from errors in the KRA system. This will cure the prejudice taxpayers face when the Authority is at fault.

✅Requirement for the Commissioner to provide reasons for the amendment of a tax assessment -
KRA owes taxpayers fair administrative action and this goes to cement that responsibility.

3. Value Added Tax Act:
✅ Several goods moved from zero rated to tax exempt - The difference between zero rated and tax exempt is that for zero rated goods, tax payers are allowed to claim input VAT while for exempt goods, this is not allowed.

Therefore the manufacturers of moved goods will not enjoy tax benefits as before. Please find the full list of such goods in our Analysis 👇

drive.google.com/file/d/1uz04om…

✅Prevention of misuse of Zero Rated or Exempt status of goods -
The bill proposes to mandate the payment of VAT for goods used contrary to the purpose they were exempted or zero rated for. This provision seeks to curb misuse but raises concerns on assessments conduct.

✅ Offset option for VAT refunds arising from Bad Debts -
This will allow taxpayers to deduct the VAT paid on goods which they were not paid in their tax returns. The provision makes it easier for taxpayers to unlock such refunds.

4. Excise Duty Act:
✅Expansion of the Term “Digital Lenders”-
The proposal seeks to include unregulated lenders as only regulated lenders are included as of now.

✅Insertion and Deletion of products subject to Excise Duty -
Some goods will become more expensive while others cheaper due to Excise Duty. Please refer below for the full list of goods👇

drive.google.com/file/d/1uz04om…

5. Miscellaneous Fees and Levies Act:
✅ It narrows the scope of aircraft exempt from Import Declaration Fee and Railway Development Levy - Going forward, only aircraft of between 2-15T and those exceeding 15T will be Exempt.

✅Reduction of Export and Investment Promotion Levy from 17.5% to 5% mainly for goods in the construction sector -
This is seen as a move by the government to bolster the construction sector which has slowed down.

Kindly interact with our tabulated analysis below for full insights 👇



Ends!!drive.google.com/file/d/1uz04om…