The Finance Act, 2025, signed into law on 26 June 2025, introduces wide-ranging changes to Kenya’s tax landscape. Among the most significant are amendments to the Income Tax Act (Cap. 470), reshaping how individuals and businesses report, calculate, and pay tax.
At UHY Kenya, we believe that understanding these changes is critical for effective tax planning and business resilience. Below is a breakdown of the key amendments that could impact your operations.
1. Winnings, Withdrawals, and Betting Tax
The definition of winnings has been replaced with withdrawals. This means tax will now be applied when funds are withdrawn from wallets not when they’re won.
For betting operators, this change shifts the tax point and could impact cash flow planning. For players, it narrows taxation to actual cash-outs.
2. Higher Employee Allowances
The tax-free daily subsistence allowance has increased from KES 2,000 to KES 10,000. Employers can now provide higher per diems without incurring PAYE on these amounts, making it easier to manage travel-heavy roles without additional tax costs.
3. Online Businesses and Turnover Tax
Businesses operating over the internet—such as e-commerce stores—are now explicitly covered under Turnover Tax (TOT) provisions. The Act provides a six-month grace period (from 1 July 2025) for compliance.
For practical VAT compliance tips, see our guide on Common VAT Compliance Mistakes in Kenya.
4. Removal of Minimum Tax and Digital Service Tax (DST)
The Minimum Tax—previously applicable even to loss-making businesses—has been repealed, easing the burden on struggling enterprises.
Similarly, DST has been removed for non-resident digital businesses, reflecting Kenya’s alignment with OECD’s global tax reforms. For VAT changes affecting digital services, read our Finance Bill 2025 VAT Amendments update.
5. Deductions and Capital Gains Tax Changes
- Full deduction for small tools and utensils in the year of purchase.
- Removal of deductions for certain club contributions, scholarships, and specific public projects.
- Capital losses can no longer offset capital gains—only gains will be taxed going forward.
6. Special Economic Zone (SEZ) Incentives
Companies in SEZs benefit from capital gains exemptions on intra-zone property transfers and other tax incentives. These changes aim to stimulate foreign investment and local development.
7. Transfer Pricing & Advance Pricing Agreements (APAs)
Expanded definitions of related parties now include indirect control and family ties, increasing the scope of transactions subject to transfer pricing rules.
Companies can now enter into APAs with KRA, securing up to five years of certainty in related-party pricing. For excise-related business impacts, review our Finance Bill 2025 Excise Duty Act changes.
Key Takeaways for Business Leaders
The Finance Act 2025 moves Kenya towards a more digitally aligned, compliance-driven tax environment. Businesses should:
- Review payroll systems for allowance changes.
- Assess the impact of online tax rules.
- Update compliance processes for new definitions and deductions.
📞 Need tailored advice on how these changes affect your business?
UHY Kenya’s tax experts are ready to help you navigate these updates with precision and compliance confidence.
Kenya Banking & Financial Trends – Insights shaping the financial sector in 2025
Guide to Turnover Tax, Minimum Tax & Instalment Tax (PDF) – Essential reading for compliance
Finance Bill 2025 – Key Income Tax Changes for Businesses – Detailed breakdown of the latest
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