Cabinet Approves Finance Bill 2025, Proposes Amendments To Ksh4.3 Trillion Budget

The Cabinet has approved the Finance Bill 2025.

In a sitting chaired by President William Ruto on Tuesday, April 29, 2025, Cabinet Secretaries were directed to work closely with the National Treasury to identify and implement necessary adjustments within their respective ministries and State departments. This move aims to cap the fiscal deficit at no more than 4.5% of GDP for the 2025/26 financial year, down from 5.3% in 2023/24, 5.1% in 2024/25, and with a medium- term target of reducing the deficit to 2.7%.

“The initial budget estimates of Ksh4.3 trillion will undergo substantial revisions before being tabled in Parliament. These 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,” a despatch from the cabinet stated.

The Finance Bill, 2025 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.

“Importantly, the Bill seeks to minimise tax-raising measures. Instead, it 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,” the despatch added.

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.

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 (BETA) and reinforce the Government’s commitment to building a stronger, more inclusive economy.

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