Treasury to revise Budget estimates

**President William Ruto, chairs a Cabinet Meeting at State House, Nairobi on 29/4/2025** [PCS]

The National Treasury is expected to make significant cuts in the Budget estimates for the 2025-26 financial year in its efforts towards fiscal consolidation and to live within its means.

This aims to reduce the fiscal deficit to 4.5 per cent of gross domestic product (GDP) for the financial year from 5.1 per cent in the current year, with a medium-term target of reducing the deficit to 2.7 per cent.

In a Cabinet meeting chaired by President William Ruto at State House, Nairobi yesterday, Cabinet Secretaries were directed to work closely with the National Treasury to identify and implement necessary adjustments within their respective ministries and State departments.

As a result, the initial budget estimates of Sh4.3 trillion as set out in the 2025 Budget Policy Statement will undergo substantial revisions before being tabled in Parliament.

The Constitution requires that the National Treasury tables the estimates by April 30.

"The adjustments are part of broader austerity measures designed to strengthen fiscal discipline, reduce public debt vulnerabilities, and create the fiscal space necessary to deliver essential public goods and services," said a dispatch from Cabinet last evening.

"In furtherance of these objectives, Cabinet also approved the Finance Bill, 2025, which focuses primarily on closing loopholes and enhancing
efficiency, including addressing loopholes related to tax expenditures that have historically been exploited to siphon funds from public coffers, such as through inflated tax refund claims."

The Bill will be under scrutiny in light of the fate that befell the Finance Bill 2024 after public anger against its provisions spilled over into the streets in protests that led to its withdrawal in June 2024.

Tuesday's statement said the Finance Bill 2025 seeks to minimise tax-raising measures, and instead aims to enhance tax administration efficiency through a new legislative framework.

Key provisions include streamlining tax refund processes, sealing legal gaps that delay revenue collection, and reducing tax disputes
by amending the Income Tax Act, VAT Act, Excise Duty Act, and the Tax Procedures Act.

"Notably, the Bill proposes critical changes to support small businesses, allowing them to fully deduct the cost of everyday tools and equipment in the year of purchase, thereby eliminating unnecessary delays in accessing tax relief," the Cabinet said.

"In addition, retirees will benefit significantly as all gratuity payments, whether in public or private pension schemes, will now be fully tax-
exempt, ensuring dignity for Kenya’s senior citizens after retirement."

Employers will also be required to automatically apply all eligible tax reliefs and exemptions when calculating Pay As You Earn (PAYE) taxes for
employees.

Currently, many employers omit these reliefs, forcing employees to seek refunds from the Kenya Revenue Authority.

"These reforms underpin the Bottom-Up Economic Transformation Agenda and reinforce the government’s commitment to building a
stronger, more inclusive economy."

In a move to ensure predictability and strengthen emergency preparedness, the Cabinet also gave nod to the Public Finance Management (Amendment) Bill, 2024.

This Bill mandates "rather than merely encouraging" all county governments to establish County Emergency Funds.

"This decision follows the serious gaps exposed by the 2023 El Nino rains and stems from extensive consultations and a directive issued at the 24th Ordinary Session of the Intergovernmental Budget and Economic Council (IBEC) in August 2024," the Cabinet statement said.

The amendment aims to equip counties with the financial readiness to respond swiftly to future emergencies, thereby protecting lives, livelihoods, and critical infrastructure.

In a demonstration of its commitment to enhancing governance, strengthening judicial independence, and attracting the most qualified
legal professionals, the Cabinet endorsed the Judges Retirement Benefits Bill, 2025.

The Bill establishes a dedicated pension and retirement benefits framework for judges of the superior courts, moving them away from the
general Pensions Act and recognising the unique demands of judicial service.

It introduces a Defined Benefit system for serving judges and a Defined Contribution system for new appointees, ensuring financial security, protecting judicial independence, and aligning with broader public sector pension reforms.