Introduction

The Finance Act (“the Act”), 2025 received Presidential assent on 26th June 2025. Most of the changes are effective from 1st July 2025, which is the beginning of the Government’s fiscal year, while two will be effective from 1st January 2026.

Most of the proposed changes in the Finance Bill, 2025 have been maintained in the Act with a few additions.

This newsletter provides an overview of the amendments across several tax laws, including amendments relating to:

  • Tax losses to expire if not utilised within 5 years with an option of being extended by the Cabinet Secretary of finance
  • Introduction of Advance Pricing Agreements (APA)
  • The per diem limit increased from KShs. 2,000 to KShs. 10,000 per day
  • The definition of royalty will not include distribution of software as was proposed in the bill
  • The sale of scrap that had earlier been included as a transaction subject to WHT has been removed
  • Special investment deduction rate of 100% for entities investing outside Nairobi City County and Mombasa County, as well as for those investing in Special Economic Zones (SEZs) retained
  • The special tax rate of 15% for companies constructing at least 100 residential units annually has been retained
  • Local assemblers of motor vehicle will still enjoy a preferential tax rate of 15% rate for the first 5 years of operations
  • The tax base for betting and gaming will no longer be winnings but amounts withdrawn which will be taxed at 5%
  • Making or facilitating payments through a digital marketplace has been added to the charging Section for Income Tax
  • Provision for minimum tax which was declared unconstitutional has been repealed
  • The Act has included as an allowable deduction any expenditure incurred in the construction of a public sports facility.
  • Digital Asset tax (DAT) has been repealed
  • Refund of VAT on bad debt timeline reduced from 3 years to 2 years
  • Many items which were previously proposed to be moved to exempt from zero rated have been dropped and new items introduced
  • New definition of a micro distiller under Excise Duty Act which now exempts a licenced micro distillers from requirement of automation, continuous piping and use of mass flow meters
  • Introduction of additional good subject to excise duty especially for imported paper, imported kraft paper, imported glass and imported teas whether or not flavoured
  • Excise duty for betting and gaming industry lowered to 5% on the amount deposited into a customer’s wallet
  • Excise duty introduced on fees charged by virtual assets transactions by virtual asset providers at 10% of the excisable value. This tax covers for the repealed digital asset tax
  • No importation of goods into Kenya without presenting a valid Certificate of Origin
  • Refund of taxes determination by Commissioner timeline increased from 90 days to 120 days (without a refund audit exercise) and from 120 days to 180 days (with a refund audit exercise)
  • A taxpayer shall not be required to pay principal tax not deducted, withheld or remitted where the recipient of the payment has paid and accounted for the full principal tax
  • Exemption from stamp duty on transfer of property to a company to its shareholders as part of an internal organization where property is transferred in proportion to their shareholding and if the property consists of shares, these shares should be in a subsidiary of the company undertaking the transfer
  • Introduction of exemption from RDL and IDF for inputs, raw materials and machinery used in the manufacturing of mosquito repellents upon recommendation by the CS responsible for Health

 

Caveat

This publication 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 publication 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. 

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