BREAKING NEWS: President Ruto Signs Controversial Finance Bill 2025 Into Law, Here’s What’s Changing in Kenya’s Tax System

President William Ruto has signed into law the Finance Bill 2025, setting in motion a new fiscal framework that will guide Kenya’s economic direction for the 2025/2026 financial year. The signing ceremony, held under tight security at State House Nairobi, was attended by leaders from both the Majority and Minority sides of Parliament. The move comes just days after the National Assembly passed the bill, despite a backdrop of public protests and youth-led demonstrations similar to those sparked by the 2024 Finance Bill.

The Finance Act 2025 introduces broad reforms to tax administration and revenue collection, aiming to support business growth, streamline government operations, and promote a more inclusive tax regime. The law amends key tax legislations, including the Income Tax Act, Value Added Tax Act, and Excise Duty Act.

Among the major provisions is a requirement for employers to automatically apply all eligible tax reliefs, deductions, and exemptions on behalf of employees. This includes increasing the daily tax-free subsistence allowance from KSh 2,000 to KSh 10,000. Pension and retirement gratuity payments are now fully exempted from taxation, offering relief to retirees.

Unlike last year’s Finance Bill, which faced widespread criticism for introducing unpopular taxes, this year’s legislation focuses on fiscal reforms without imposing new taxes. The Digital Assets Tax has been repealed and replaced with a 5% excise duty on transaction fees charged by virtual asset service providers. The Capital Gains Tax has been reduced from 15% to 5% for high-value investments.

To encourage innovation and capital injection, the law provides a reduced corporate tax rate of 15% for startups during their first three years of operation. The same rate applies for ten years to investors contributing more than KSh 3 billion to the economy.

Mortgage tax relief has been expanded to include home purchases, construction, or development funded through SACCOs or personal loans, aimed at enhancing access to housing. Existing Pay-As-You-Earn (PAYE) tax bands remain unchanged. In response to public concerns, Parliament rejected controversial proposals that would have granted the Kenya Revenue Authority (KRA) unrestricted access to personal data, reinforcing legal safeguards around privacy.

Essential commodities including bread, sanitary towels, and infant formula have been zero-rated to shield consumers from rising costs. Additionally, tax incentives have been extended to manufacturing and technology sectors to attract foreign and local investment.

Alongside the Finance Bill, President Ruto also signed the Appropriations and Supplementary Bills into law. These measures authorize the withdrawal of KSh 1.88 trillion from the Consolidated Fund to finance government operations for the 2025/2026 fiscal year. A further KSh 671.99 billion will be drawn from internally generated revenues by Ministries, Departments, and Agencies (MDAs).

The national budget allocates KSh 1.805 trillion for recurrent expenditure and KSh 744.52 billion for development projects, signaling a focus on sustaining public services while accelerating infrastructure development and social programs.

Following the signing, President Ruto emphasized that the Finance Act 2025 represents a strategic balance between raising domestic revenue and protecting citizens’ welfare. He described it as a step toward fiscal responsibility, economic resilience, and fairer taxation.

The implications of the new law will unfold over the coming months, as stakeholders assess its impact on business, investment, and public confidence in Kenya’s economic direction.