With national anxiety mounting over the impending Finance Bill, 2025, the Treasury has moved swiftly to douse public fears and correct misinformation surrounding its proposals — just days ahead of the June 12 Budget reading.

In a bold, no-holds-barred explainer released to the media, the National Treasury defended the Bill’s controversial clauses while clarifying technical tax issues that have sparked public debate.

“This Finance Bill is not a punishment — it’s a reform tool. It seeks to strike a balance between economic growth and equitable taxation,” stated a senior Treasury official in the document.

Why VAT registration at KSh5 million

Many Kenyans have questioned the logic behind the current VAT registration threshold of KSh5 million. Treasury explained that the threshold, last reviewed in 2007, was initially set to shield small businesses from complex tax compliance.

Rising inflation and economic changes have eroded the effectiveness of the current rate. While a proposed increase to KSh8 million was shelved last year, Treasury confirmed that a future review remains a priority.

“Our goal is to ease the tax burden on small enterprises while improving compliance efficiency,” Treasury noted.

Turnover tax: Why no banding?

Responding to confusion over Turnover Tax (TOT), the Treasury dismissed calls for banded tax rates, reaffirming TOT’s purpose as a flat, simplified tax for businesses earning between Sh1 million and Sh25 million annually.

“Introducing bands would only muddy the waters. TOT was designed to be clear, accessible and predictable,” the statement read.

Importantly, TOT remains optional, with businesses allowed to opt for standard income tax regimes instead.

Why implement changes now?

The Bill proposes most amendments take effect from July 1, 2025, aligning with the new fiscal year. Delaying implementation, Treasury warned, could derail funding for development projects.

Key reasons include:

Financing the FY 2025/26 budget

Clarifying ambiguous legal provisions

Cleaning outdated tax laws

Aligning Kenya with global tax standards

Boosting KRA’s enforcement capacity

“Deferring implementation would sabotage reforms critical to modernizing Kenya’s tax system,” Treasury emphasized.

Tightening SEZ incentives

In a move likely to spark resistance among some investors, the Bill proposes restricting 100% investment deductions strictly to licensed Special Economic Zones (SEZ) entities — not just businesses located within SEZ areas.

Treasury argued that unlicensed firms have been exploiting loopholes, resulting in unfair tax advantages and revenue loss.

“This is about equity. You want the incentives? Get the license,” Treasury stated.

Digital giants to pay fair share

In line with Kenya’s Bottom-Up Economic Transformation Agenda (BETA), the Bill strengthens the Significant Economic Presence Tax (SEPT) targeting non-resident digital firms that earn from Kenyan users.

Treasury clarified that this is not a tax on Kenyan consumers but rather on digital giants profiting from local markets.

“Kenya must protect its digital economy. SEPT ensures fairness and global accountability,” read the explainer.

Pro-tax payers sweeteners

Despite criticisms, the Finance Bill contains several pro-consumer measures aimed at easing the cost of doing business:

Daily private sector subsistence allowance raised from Sh2,000 to Sh10,000

Gratuity payments officially tax-exempt

Digital asset tax halved from 3% to 1.5%

Packaging materials for tea and coffee now VAT-exempt

100% immediate deduction for tools like utensils and linen

Mortgage interest for house construction now deductible

Startups get reduced corporate tax (15% for first 10 years)

Advance Price Agreements for multinationals for tax certainty

Boost for transparency and tax justice

In a rare pro-taxpayer turn, the Bill includes provisions compelling KRA to:

Justify tax assessments

Respond within six months to accounting date changes

Avoid penalizing withholding agents twice where the tax has been paid

“This is about building trust with taxpayers while ensuring compliance,” the Treasury asserted.

Steel sector and excise reliefs

Finally, raw materials like billets and wire rods — vital for the steel industry — will see reduced export and investment levies. Excise duties on ethanol and digital lending fees will also be eased.

As Kenyans await the Budget reading, Treasury insists the Finance Bill, 2025 is a “strategic blueprint” — not a cash grab.