The Finance Act, 2025 was assented to by the President on 26th June 2025 and is now in force. It introduces wide-ranging tax measures through amendments to several key laws, including the Income Tax Act (Cap. 470), VAT Act, Excise Duty Act, Tax Procedures Act, and Miscellaneous Fees and Levies Act.
While most provisions take effect from 1st July 2025, a few will roll out from 1st January 2026. Below is a summary of the major Income Tax changes that could affect your business operations and compliance strategy.
1. Winnings and Withdrawals
The definition of “winnings” has been deleted and replaced with “withdrawals,” shifting the tax trigger from when winnings occur to when funds are withdrawn from betting and gaming wallets. This ensures taxation is based on actual cash-outs.
→ See KRA’s official Withholding Tax Guidelines for updated compliance requirements.
2. Debentures
The definition of “debenture” has been deleted. This could benefit companies with intra-group or cross-border unsecured loans by reducing exposure to deemed interest taxation.
3. Employee Allowances
The daily tax-free subsistence allowance for employees has increased from KES 2,000 to KES 10,000. This offers greater flexibility for employers managing work-related travel and assignments.
→ For PAYE guidelines, refer to the Kenya Revenue Authority PAYE Manual.
4. Turnover Tax
Turnover Tax will now apply to businesses operating online, with a six-month compliance grace period from 1st July 2025.
→ Learn more in KRA’s Turnover Tax Overview.
5. Digital Service Tax (DST)
DST provisions have been repealed, in line with Kenya’s commitment to the OECD’s global tax framework.
6. Capital Gains Tax
Expanded scope to include members’ clubs and trade associations carrying on business. Group reorganisation relief is now extended to individuals.
→ See the Capital Markets Authority for securities-related regulations that may interact with CGT.
7. Advance Pricing Agreements
Businesses can now enter APAs with KRA for up to five years, providing certainty and reducing transfer pricing disputes.
8. Special Economic Zones & NIFC Incentives
Nairobi International Financial Centre-certified companies and certain Special Economic Zone transactions benefit from reduced tax rates and exemptions subject to meeting investment and employment thresholds.
→ Visit the Nairobi International Financial Centre Authority for certification requirements.
Why These Changes Matter
The Income Tax amendments in the Finance Act 2025 will reshape how businesses manage compliance, tax planning, and cross-border transactions. From betting withdrawals to online commerce, the updates demand both operational adjustments and strategic foresight.
Related Resources
For a deeper understanding of these changes and how they fit into Kenya’s broader tax and business environment, explore:
- Kenya Banking & Financial Trends
- Guide to Turnover Tax, Minimum Tax & Instalment Tax (PDF)
- Finance Bill 2025 – Key Income Tax Changes for Businesses
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