MWAURA: Finance Bill 2025 is a game changer: Great gains for Kenyans of different walks of life

Government Spokesperson Isaac Mwaura/HANDOUT

The much-awaited Finance Bill 2025 is finally out. Social media has been awash with false proposals intended to incite Kenyans against the government.

Indeed, the timing of the recent documentary on the BBC is suspect, noting that they deliberately presented a one-sided account to advance a particular narrative.

This concoction of lies, clearly from those seeking chaos and the incitement are part of a well-orcheographed strategy not only to besmirch the image of the government but also to destabilise the country. However, President William Ruto has ensured that this year’s Finance Bill includes benefits for Kenyans.

Firstly, employers must automatically apply reliefs such as SHA, Housing Levy and mortgage deductions before calculating Pay as You Earn, resulting in lower taxation for employees.

This was not the case previously, leading to employees awaiting tax refunds from the Kenya Revenue Authority.

This proposal will lead to efficient tax administration and predictable income for all employees, enabling effective planning on a personal and organisational level.

It will also help the KRA to reduce the backlog of tax refunds. Secondly, the bill proposes several measures to eliminate fraudulent tax refund claims by closing loopholes that a few companies have used to deny Kenyans revenue.

These proposals will improve efficiency, thus saving the country billions of shillings that can now be used for development such as roads, hospitals, schools, water etc.

It is refreshing and empowering to note that our senior citizens who are retiring will not pay tax on their pensions (both lump sum and monthly payments), thus receiving a higher income for a more comfortable life after serving the country.

This will also help increase their self-reliance. The tax-free pension will now apply to private insurance schemes, which were not covered before.

In addition, small businesses can fully deduct the cost of tools and equipment in the same year, – for example utensils – immediately, thus simplifying the often tedious tax accounting procedures. Moreover, the bill proposes changes that will expedite refunds to reduce tax disputes.

This will ensure greater availability of funds for businesses and for the government to improve public service delivery. To reduce unnecessary expenditure that leads to borrowing and increases public debt, the fiscal deficit will be reduced to 4.5 per cent of GDP in FY2025/26.

This also aligns with international best practice. As Joseph Stiglitz said, “A country’s tax policy is ultimately a statement about its values.”

The Finance Bill has also proposed measures to ensure that unnecessary expenditure in the government, such as office consumables and travel, has been reduced to focus on more important priorities.

Content creators, especially Gen Z, can be reassured as the digital service tax has been abolished. This means more income for them and their families, encouraging digital innovation and aligning with global norms.

Furthermore, employees in the private sector typically pay tax on their daily per diem, which the Salaries and Remuneration Commission had capped at only Sh2,000. This has been raised to Sh10,000 and is now tax-free, thus boosting morale and ensuring fairness in the formal sector.

Additionally, the crypto tax rate has been halved from three percent to 1.5 per cent, enabling Kenyans to earn more and have greater disposable income. This will also help position Kenya as a fintech-friendly destination for investors.

To reduce multiple and unclear means of taxation for online businesses operating outside our borders, the Significant Economic Presence (SEP) model has been adopted for digital multinationals.

This ideally shifts tax liability to global platforms with local revenue, aligning with the International Monetary Fund’s global principle that digital taxes must evolve with the platform economy, not punish its users.

As Hernando De Soto observes in his book, The Mystery of Capital, “simplification is the best reform. Complexity breeds corruption.” Moreover, the maxim among OECD countries is that the tax system should not lag behind the economy it aims to govern.

Interestingly, some companies have been profiting through refund claims of up to Sh47 billion in the manufacturing and sale of bread.

The new revenue-raising measures propose the closure of these revenue leakages to protect taxpayer money by disincentivising tax evasion and refund fraud. In addition, stiff penalties for fraudulent refund claims have been proposed and the KRA will be enabled to use AI and data analytics in fraud detection.

It will also be modernised to increase its investigative capacity. Most importantly, the discretionary powers of the National Treasury to grant tax waivers have now been limited in the proposed legislation to prevent abuse.

This will help reduce the scope for corruption and patronage. It is indeed true that every shilling lost to fraud is a shilling stolen from public trust and that technology is the greatest equaliser in the fight against corruption. Indeed, illicit refunds are worse than evasion as they are theft disguised as compliance.

According to research conducted by Transparency International, “where laws exist without timelines, impunity flourishes.”

The new Finance Bill proposes time-bound processes for refunds and taxation to speed up resolution and reduce backlogs. There are also new enforcement penalties for non-filers and defaulters.

This will not only help improve tax compliance culture but also lead to higher revenue collection, thus deterring the government from increasing public debt through borrowing. For example, some individuals, when compelled to pay taxes, end up appealing at the KRA tax appeals tribunal.

Since simply lodging an appeal is equivalent to a stay of execution of the previous judgment, over Sh170 billion has not been collected so far. This money would have been more useful in bringing development to Kenyans, such as roads and SHA, yet some people are using the court system to evade their obligations.

The new bill proposes that unless one has an explicit stay order from a court of law, they are compelled to pay the amounts due to the taxman. Appeals must henceforth be accompanied by payment of tax due to discourage frivolous litigation, as justice delayed is revenue denied. Legal bottlenecks cost the state more than unpaid taxes.

Kenya has lost its competitive advantage in aircraft repairs to its neighbours due to high taxes. The bill proposes the exemption of aircraft repair spare parts to boost Kenya’s ambition to be an African aviation hub.

This alone will help create over 3,000 jobs for our aviation technicians and engineers. To support digital money, fintech start-ups will have a much more simplified compliance process for onboarding.

This is important because Kenya has been the top destination for start-up capital in Africa for the last two consecutive years. This will promote local tech enterprise growth, as incentives work best when tied to performance. Indeed, nations rise on the strength of their builders, not their buyers.

The Finance Bill 2025 is thus a game-changer in that, rather than introducing new taxes, it seeks to ensure that those who are not meeting their obligations do so as a patriotic duty.

The bill addresses corruption and wastage, ensures fairness and equity and provides incentives towards creating more jobs for our youth in different sectors of the economy. Let us support it for a better, more prosperous Kenya.