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The theme of the 2025 Budget Policy Statement (BPS) is "Consolidating Gains under  Bottom-Up Economic Transformation Agenda for Inclusive Green Growth." The BPS, which is the third  under the Kenya Kwanza Administration, highlights the progress made in the implementation of the Bottom-Up Economic Transformation Agenda (BETA) and aligns with Kenya’s Vision 2030's Fourth Medium-Term Plan.

Notably, economic growth slowed to 4.6% in 2024 from 5.6% in 2023 due to reduced economic activity and slower private sector credit growth. However, it is expected to recover to 5.3% in 2025 and maintain that pace, supported by improved agricultural productivity, a strong services sector, and continued implementation of BETA priorities.

The global market has also experienced uncertainty introduced by the recently issued executive order by the U.S Government, introducing a new structure of reciprocal tariffs on imports. The increased tariffs particularly affect Kenyan exporters to the USA in the agriculture, textiles, floriculture and mining industries. With potential retaliatory tariffs expected from other economic powerhouses, the proposed Finance Bill, 2025 seeks to cushion the Kenyan economy.

While the previous Finance Bills introduced significant changes for salaried persons, the Finance Bill 2025 has focused on changes that widen the current tax base to meet the estimated revenue from taxes of KES 3.385 trillion, made up of ordinary revenues of KES 2.84 trillion and appropriations-in-aid. The Government’s fiscal policy for FY 2025/26 focuses on fiscal consolidation to reduce public debt and create room for essential public services. 

Among the proposed changes is the expansion of the businesses subject to Significant Economic Presence (SEP) Tax to include those operating over the internet or electronic network. The Bill also proposes the introduction of advanced pricing agreements for non-resident persons who carry out business with related resident persons or resident persons who carry on business with related persons in preferential regimes.

On VAT, The Bill has proposed several changes to the First Schedule of the VAT Act. Notable is the proposed exemption of supply of electric bicycles , input of raw materials locally purchased or imported for the manufacture of animal feeds, and electric buses of tariff 87.02 which are currently zero rated.

For personal income taxes, the Bill proposes to expand the per diem benefit from KES 2,000 to KES 10,000.

For companies operating in the country, the Bill proposes to limit the period for the carrying forward of tax losses to five years from when the tax losses are incurred rather than in perpetuity.

A significant change under the Tax Procedures Act is the proposal to empower the Commissioner to issue agency notices on tax disputes being heard at the High Court and other courts.

In the following document, we present our detailed analysis of the proposed changes.