OPINION: New tax laws to take effect after Ruto signs Finance bill 2025 into law

President William Ruto signed the Finance 2025 into law a week after members of the National Assembly passed it with minimal amendments. 

The President also signed the 2025 Appropriation Bill, allowing the Treasury to withdraw Ksh.1.88 trillion from the Consolidated Fund for the 2025/26 financial year.

The Finance Act defines the government’s revenue-raising measures, including tax policies, and outlines how public funds will be spent in the 2025/2026 fiscal year.

The act amends six key tax laws: the Income Tax Act, the Value Added Tax Act, the Excise Duty Act, the Tax Procedures Act, the Miscellaneous Fees and Levies Act, and the Stamp Duty Act.

It also introduces a mandatory amendment to the Income Tax Act, requiring all employers to automatically apply all applicable tax reliefs, deductions, and exemptions for their employees. This move aims to ease the tax burden on salaried workers.

Key features of the new law include the scrapping of tax deductions on retirement gratuity and the expansion of mortgage tax relief.

Kenyans will now qualify for the relief whether they purchase, build, or construct homes through SACCOs or personal loans — a change aimed at spurring housing development and ownership.

The act maintains the existing Pay-As-You-Earn (PAYE) tax bands after the Finance Committee rejected proposals to revise the rates in an effort to ease the burden on low and middle-income earners.

The amendment had proposed expanding the bands to 10%, 17.5%, 25%, 27.5%, and 30%.

The MPs had adopted several other proposals by the Finance Committee, among them a full tax exemption for all pension payments, whether received as lump sums or in instalments, and repealed redundant provisions to enhance clarity.

They also agreed on the retention of the Ksh.500 excise duty per litre on Extra Neutral Alcohol (ENA) for licensed spirituous beverage manufacturers, providing relief to players already burdened by increased duties.

The Finance committee also opted to maintain the zero-rated status for key locally assembled and manufactured commodities, including mobile phones, motorcycles, electric bicycles, solar and lithium-ion batteries, electric buses, and raw materials for animal feed production.

This decision preserves the progress made in supporting local industries and keeping essential goods affordable.

Stakeholders had expressed concern that reclassifying these items as tax-exempt could inadvertently raise production costs, ultimately making them less accessible.

Among the key proposed amendments, the committee rejected a National Treasury proposal to grant the Kenya Revenue Authority broad access to personal data, including trade secrets and confidential customer information. Citing Article 31(c) and (d) of the Constitution, the committee deemed the provision unconstitutional, aligning with public sentiment gathered through extensive nationwide participation.

In its report, the Committee further noted that Section 51 of the Data Protection Act, 2019, already outlines limited and clearly defined grounds under which personal data may be exempted from protections.

The committee also resolved to withdraw the proposal to eliminate the 15% corporate tax rate granted to companies engaged in the local assembly of motor vehicles and the construction of at least 100 residential housing units.

Stakeholders had argued that the suggested removal would efforts to reduce the housing deficit and promote local manufacturing.

The integration of proposals from public participation forums highlights the growing recognition and impact of citizen input in shaping key policy decisions.