)
)
The Departmental Committee on Finance and National Planning has concluded its consideration of the Finance Bill 2025.
The Finance Bill 2025, published on May 6, 2025, seeks to introduce several significant amendments to existing tax laws, including the Income Tax Act, VAT Act, Excise Duty Act, and others, as part of a comprehensive tax reform strategy.
After thorough deliberations and consultations with stakeholders, including public forums and town hall meetings, the committee has made crucial recommendations.
Chair of the National Assembly's Finance and National Planning Committee is Kimani Kuria.
)
)
)
Key Amendments and Proposals
Data Protection Concerns with KRA's Access to Personal Data
The committee took a stand on the controversial proposal granting the Kenya Revenue Authority (KRA) extensive access to customer data for tax compliance purposes.
The Committee raised constitutional concerns regarding the right to privacy, particularly under the Data Protection Act and the Constitution of Kenya.
It concluded that the proposal was both unnecessary and potentially unconstitutional, given the existing safeguards in the law.
Zero-Rated Goods vs Tax Exempt
The committee disagreed with a proposal to reclassify essential goods, such as locally assembled mobile phones, electric bicycles, and solar batteries, from zero-rated to exempt status.
They argued that keeping these items zero-rated was vital for supporting local manufacturing and keeping production costs low.
The committee held that reverting them to exempt status would undermine efforts to foster local industries and raise costs for consumers.
Reclassification of Software Distribution and Royalties
Initially, the Finance Bill 2025 proposed classifying payments for software distribution as royalties, subject to withholding tax.
However, after extensive consultations, the Committee recognised the concerns about this classification.
In response to stakeholders, the Committee recommended the removal of the software distribution provision from the Bill.
This amendment will benefit digital businesses, particularly in the tech sector, by reducing the tax burden on software distributors.
READ ALSO: KRA deploys tool to catch shady traders filing nil returns: Everything you should know
Chair of the National Assembly's Finance and National Planning Committee is Kimani Kuria.
Pension Payments Tax Exemption
The Finance Bill 2025 originally aimed to clarify the tax treatment of pension payments, including lump sum withdrawals.
While the bill proposed exemptions, some redundant provisions caused ambiguity in the tax system.
The committee has recommended repealing these redundant provisions, ensuring that both lump sum and monthly pension payments are fully exempt from income tax.
For retirees, this is a significant win. It removes any confusion surrounding tax exemptions on pension payments, providing greater clarity and allowing retirees to enjoy their benefits without the fear of unexpected tax liabilities.
READ ALSO: NSSF registration - 5 things every first-time employee should know
Expansion of Significant Economic Presence Tax (SEPT)
One of the more progressive changes endorsed by the committee is the expansion of SEPT.
Initially limited to digital marketplaces, the bill now seeks to include income generated through all forms of digital networks, such as websites and e-commerce platforms.
This move aims to broaden the tax base and ensure fairness in taxing digital services.
The committee also supported removing the Sh5 million revenue threshold for SEPT.
This means that both big and small foreign online service providers who have customers in Kenya but don’t operate in the country will be subject to tax.
Businesses that rely on foreign digital services may see a slight increase in costs, which could be passed down to consumers.
READ ALSO: Billions online taxi & delivery services are making in Kenya
Chair of the National Assembly's Finance and National Planning Committee is Kimani Kuria.
Minimum Top-up Tax
The committee supported proposals in the Finance Bill 2025 that say a minimum top-up tax shall be payable by the end of the fourth month after the end of the year of income.
The minimum top-up tax ensures that Kenyan subsidiaries of multinational corporations cannot exploit low-tax jurisdictions to avoid paying taxes on profits made in Kenya.
Interest Deductions on Residential Mortgages
In a bid to reduce tax burdens on homeowners, the committee recommended allowing interest deductions for mortgages used to construct residential houses.
This change aims to encourage homeownership and alleviate some of the financial pressures on individuals constructing homes.
What is next for the Finance Bill 2025?
The Finance Bill 2025, with these proposed amendments, will now be presented to the National Assembly for the 2nd reading.
Second Reading in the National Assembly
This is a key stage where Members of Parliament (MPs) debate the bill's general principles and objectives. If the Second Reading is approved, the bill moves to the next stage of detailed examination.
Committee of the Whole House
In this stage, the Bill will be debated clause by clause. MPs will scrutinise each section and suggest amendments.
The Committee of the Whole House will consider the Bill, and any amendments proposed will be voted on by the MPs.
Members Parliament at the National Assembly Chambers
Report to the House
Once the Committee of the Whole House completes its work, the Bill, along with any amendments, will be reported back to the House. The Committee Chairperson will present the report to the House, summarising the proposed changes.
Third Reading
After the Bill has passed through the Committee of the Whole House, the Third Reading is held.
This stage involves a final debate on the Bill, focusing on its amended form. The Third Reading is typically shorter and allows MPs to vote on the final version of the Bill.
Presidential Assent
If the National Assembly passes the bill, it will be presented to President William Ruto for assent. Upon receiving the President's assent, the bill becomes law.