The Finance Act (“The Act”), 2025 received Presidential assent on 26th June 2025. Most of the changes will be effective 1st July 2025 with two effective from 1st January 2026.
The summarised newsletter by RSM Eastern Africa below provides brief insights into the key amendments and introductions to the various Acts by the Finance Act.
INCOME TAX
Tax losses – The Act has introduced a limitation on the period that tax losses can be carried forward capping this to five years.
However, taxpayers can apply to the Commissioner to carry these forward for an additional five years after the expiry of the first five years.
Per diems – Tax free per diem allowance for employees has been increased from KShs. 2,000 per day to KShs. 10,000 per day.
Emoluments – Employers will be required to apply all applicable deductions, reliefs and exemptions prior to computing the tax deductible from employees.
Related persons – The Act has expanded the definition of related persons to include third parties who control multiple entities.
Withdrawals – The Act has deleted all references to winnings and replaced these with withdrawals which refers to amounts withdrawn by a customer from their betting or gaming wallet.
Scope of WHT – The Act has added the; supply of goods to a public entity, making or facilitating payment over a marketplace and withdrawals to the charging section of WHT.
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National carrier – The Act has exempt from withholding tax payments made by the national carrier to a non-resident person not having a permanent establishment in Kenya.
Sale of scrap – This will no longer be subject to withholding tax.
Diminution of loose tools – The Act has reinstated the deductions for loose tools allowing for 100% deductions for the expenses incurred on loose tools in a year of income.
Mortgages on owner occupied residential premises – The Act has expanded the allowable deduction in relation to interest on mortgages to include interest charged on mortgages taken to construct owner occupied residential premises.
Deduction on Sale of standing timber – Salesperson of standing timber can now claim costs on a self-assessment basis.
Digital asset tax – The Act has deleted all provisions relating to DAT. This had been introduced in 2023.
Minimum top up tax – The Act has introduced a due date for the settlement of MTT to be by the end of the fourth month following the end of the year of income.
Advance Pricing Agreements – The Act has introduced APAs that will be agreements between the Commissioner and a taxpayer on the arm’s length price of transactions the taxpayer intends to undertake that fall within the ambit of the Kenya transfer pricing regulations. An APA will be valid for five years.
Country by country reporting – The Act has deleted exemptions to CBC reporting thus all MNEs with a consolidated turnover above KShs. 95 billion will be required to file a CBC report in Kenya.
Capital gains tax – The Act has amended the ITA to exempt from CGT a transfer of property by an individual to a company wholly owned by immediate family.
Change of accounting period – The Act has introduced a 3-month timeline for approval of request of change of accounting year by the Commissioner failure to which these will be deemed approved.
Exemption from income tax – The Act has extended the period for determination of an income tax exemption application from 60 days to 90 days.
Individual retirement funds – The Act has removed the requirement for these to be registered with the Commissioner.
VALUE ADDED TAX
ETIMS – The Act has clarified that only payments subject to WHT as a final tax shall be exempt from ETIMS requirements.
VAT refunds – The Act has harmonised the period for refund applications to be within 12 months similar to provisions of the TPA.
Refund of excess credits from zero rating od supplies – The Act has provided a window of 6 months from 1st July 2025 to persons to claim excess input credits on products reclassified to zero rated status in FA 2023.
Refund of tax on bad debts – The Act has reduced the waiting period for claiming VAT on bad debts from 3 years to 2 years.
Rate changes – Taxable goods of Chapter 5407 & 6309 imported as raw materials now standard rated. Packaging material for coffee and tea zero rated, supply of locally consumed teas now exempt, taxable services and goods to Defence force Welfare Services exempt.
TAX PROCEDURES ACT
Agency notices – The Commissioner can now issue agency to non-resident persons subject to tax in Kenya.
Certificate of origin – All imports will need to be supported by a certificate of origin.
Waiver of penalties & Interest – The Commissioner can now waive penalties and interest arising due to errors generated by an electronic tax system.
Refunds – Timelines for refund processing has been increased to 120 days for refunds not audited and 180 days for refunds that the Commissioner chooses to audit.
Late objections – Timelines for issuance of an objection decision on late objections will now start running from the date the objection is lodged.
Amended assessments – The Commissioner will be required to include reasons within the amended assessments.
Penalty for failure to file returns – The Commissioner can now issue default assessments where there is no return and apply a penalty similar to a late filing penalty.
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Security for unpaid taxes – The Act now exempts the imposition of restrictions or the auctioning of property by the Commissioner from Stamp duty.
EXCISE DUTY
Digital lender – The Act has included within the definition of a digital lender non licensed entities under the CBK Act, fees charged by these institutions will be subject to excise duty at 20%.
Harmonisation with EAC protocols – For Excise duty purposes, goods shall be classified based on the protocol establishing the EAC Customs Union and the GIRs.
Digital Services – Non-residents shall be liable for payment of excise duty for excisable services offered through the internet, an electronic network or digital marketplace.
Timeline for Excise License – The Commissioner will have 14 days to consider and decide on an excise license application where all documents have been provided.
Defence Forces Welfare Services – All goods and services imported or locally purchased by them will be exempt.
STAMP DUTY
Transfer of property by a company to the shareholders as part of a re-organisation now exempt where this is done in proportion of shareholding.
Jilna Shah Tax Director CONTACT US: RSM Eastern Africa Consulting Ltd jshah@ke.rsm-ea.com |
CAVEAT
This newsletter has been prepared by RSM (Eastern Africa) Consulting Ltd, and the views are those of the firm, independent of its directors, employees and associates. This newsletter is for general guidance, and does not constitute professional advice. Accordingly, RSM (Eastern Africa) Consulting Ltd, its directors, employees, associates and its agents accept no liability for the consequences of anyone acting, or refraining from acting, in reliance on the information contained herein or for any decision based on it. No part of the newsletter may be reproduced or published without prior written consent. RSM (Eastern Africa) Consulting Ltd is a member firm of RSM, a worldwide network of accounting and consulting firms. RSM does not offer professional services in its own name and each member firm of RSM is a legally separate and independent national firm