Finance Bill 2025: When will Kenyans engage in broader Budget discussion?

When it comes to matters fiscus, we have come full circle in a single generation. Some will recall the 1990s, when the key subject for debate during the Budget season was the Finance Bill, or specifically, tax changes. We then went into a democratic phase where we paid attention to the spending side of the budget, and more recently debt. Yet government remained “Baba na Mama” of the economy, a reminder that our 2010 Constitution is not ingrained in our Kanu mindsets. 

We have come full circle because, if we split the current final phase of the 2025/26 Budget season into four parts, we will spend 60 per cent of our time discussing a Finance Bill which is one part of the revenue question. We will allocate 10 per cent to debt, five per cent to expenditure and focus the other 25 per cent on “the many things government needs to do for us whether or not we have read the Finance Bill or draft budget estimates”.  This is harsh, but it is true today.

In an ideal world, we would begin debate with the economy, before turning to government’s role as one part of the economy (spending estimates and policy), not the economy itself.  This first part would surface where we want to go, how we want to get there and the resources we need.  The second part is about how we raise these resources – through taxes (including the Finance Bill), non-tax revenues (fees and charges), debt  or other financial and non-financial resources.

Guiding this conversation is the intergenerational promise that future generations will not be burdened by current ones. That’s how we get a holistic, not incremental, tax (and budget) debate!

Today, people seek more, better services – as rights not privileges – with less painful taxes and debt. They struggle to see value in current taxes and borrowing. Ideally, waste, mismanagement and graft; plus value for money, transparency and accountability must be inbuilt into this debate.

Sadly, this is the context that informs Finance Bill 2025. Its title alone is a signal to Kenyans that more taxes are coming, whether or not this is the case. This particular administration has been particularly adept at fostering this drama and mistrust as we saw with the still-disputed 2023 Finance Act and the ultimately withdrawn 2024 bill. It doesn’t help that we’ve had a raft of tax-related laws passed since July 2024, a continuation of our piecemeal attitude towards tax policy. 

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Remember the four amendment laws (Tax Laws, Tax Procedures, Business Laws, Public Finance Management) passed last December to partly recover the lost Finance Bill 2024? What do you know about more recent amendments to the VAT and Excise Duty Acts before the Finance Bill 2025?

We have not yet come to this year’s Bill, but here a couple of final contextual thoughts.  How’s our National Tax Policy doing? Remember, the policy that promised “to address unpredictability of tax rates, (through a) comprehensive review of tax laws every five years”? Kenya, of course, being the most tax-unpredictable country in the East African region, as IMF research tells us.

What about the much-vaunted Medium-Term Revenue Strategy (MTRS) in which we set out to expand personal income tax bands in 2024/25, cut the corporate tax rate to 28 per cent in 2025/26 and 25 per cent by the strategy’s end in 2026/27?  While cutting the VAT rate by one per cent in 2024/25 and another one per cent in 2026/27?  What happened to VAT on education and insurance services or withholding taxes on agricultural produce or sector-based presumptive taxes or carbon and motor vehicle circulation taxes? Do we have a mid-term review of MTRS?

Which brings us finally to Finance Bill 2025.  We’ve had the plain, early-May 27-page version on which much expert analysis was quickly conducted. Then we got the slightly-different “green copy”, officially gazetted 132-page version this week, which tweaked items in Clauses 36 and 42, quietly amended the initial amendment to the export and investment promotion levy from five to 10 per cent and threw in a 60th clause relating to stamp duty exemption on proportionate property transfers in internal company reorganisations. In low-trust Kenya, it is easy to scream “protest” (and these changes require explanation), but the correct picture is the official version of the bill simply annexes the actual parts and sections of the tax laws that are being amended.

This is not the same as offering explanations for the changes to law, as happens with other bills.

So, stepping away from rosy official commentary in the media, what are the big messages in the Bill? There are definitely positives on the personal income tax end from tax free gratuities to increased tax free limits on per diems to employer-driven tax deductibility of employee reliefs and deductions. Businesses may now claim 100 per cent deductions, rather than amortizations, on implements and utensils used, while start-ups and large, mostly multinational, corporates at the Nairobi International Financial Centre will benefit from favourable tax regimes in their early years.

At the same time, there will be questions about the reverted 5-year limitation on tax losses carried forward, about subjecting non-resident shippers to withholding tax and about an expanded definition of taxable royalties to include software licenses beyond intellectual property rights. Removal of ex-Nairobi and Mombasa investment allowances and preferential tax rates for builders of over 400 units and local motor vehicle assemblers might raise eyebrows in counties. 

At the same time, investors in affordable housing, aviation, energy and mining (including green energy), tourism and tour operations, hospitals and healthcare systems must now face the cost implications of elevation from exempt to standard VAT status, as will those in pharmaceuticals, animal feeds, tea and coffee packaging, sugarcane transport, local mobile phone assembly and manufacturing, motorcycles and electric bicycles and buses moved from zero-rated to exempt VAT status. The same concern arises for packagers facing higher minimum excise taxes and higher values on which they are taxed.  Of course there is much more in the bill; these are illustrations.

But it might be that many of these changes, including important procedural ones to improve KRA administrative actions and responses, are a first step in removing discretion where it isn’t necessary, while enforcing accountability where it is. In this sense, we seem to be at the point where we aren’t quite ready to go the full throttle on tax policy and strategy because the Finance Bill is the tax policy and strategy. The hard task for Kenyans is we are talking about the national Finance Bill here, we still have 47 County Finance Bill awaiting their own public participation.

Let’s place this Bill in numbers context. The CS, Treasury has said he expects to raise a relatively modest Sh25-30 billion from Finance Bill 2025, although the VAT and excise changes suggest a target closer to Sh100-150 billion if we consider these tax expenditures being extinguished. But we are talking about a Sh16.2 trillion economy with a Sh2.8 trillion revenue target and Sh4.2 trillion spending budget. At what point will we get the public engaged in this bigger discussion?