The Finance Bill, 2025
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Executive
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Final
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New 15% Minimum Top-Up Tax for Multinationals
Introduces Section 12G of the Income Tax Act, creating a minimum top-up tax of 15% on multinational groups with a consolidated annual turnover of 750 million Euros or more, payable where their effective tax rate in Kenya falls below 15%.
Digital Lenders Now Require a CBK Licence
Amends the Excise Duty Act to redefine "digital lender" exclusively as a person holding a valid digital credit provider's licence issued by the Central Bank of Kenya under the Central Bank of Kenya Act (Cap. 491).
Country-by-Country Reporting for Large Multinational Groups
Imposes country-by-country reporting, local file, and master file submission requirements under Section 18D on resident ultimate parent entities or surrogate parent entities of multinational groups with a consolidated group turnover of KSh 95 billion or more.
Tax Waivers for ETIMS System Glitches
Amends Section 89 of the Tax Procedures Act to authorize the Cabinet Secretary to waive penalties or interest caused by electronic tax system (ETIMS) errors, system update delays, registration errors, or invoice duplications.
Clean Energy and Phone Assembly Exempted From VAT
Zero-rates or exempts from VAT crucial local manufacturing and green sectors, including locally assembled mobile phones, electric motorcycles, electric bicycles, solar and lithium-ion batteries, electric buses, and sugarcane transportation.
Bill No.
No. 19 of 2025
Gazette No.
Supplement No. 63 of 2025
Sponsor
Kuria Kimani
Background
The Finance Bill, 2025 is the primary legislative vehicle through which the Government of Kenya introduces revenue-raising proposals, modifies existing tax bases, and refines tax administration structures. The bill amends key laws, including the Income Tax Act (Cap. 470), the Value Added Tax Act (Cap. 476), the Excise Duty Act (Cap. 472), the Tax Procedures Act (Cap. 469B), the Miscellaneous Fees and Levies Act (Cap. 469C), and the Stamp Duty Act (Cap. 480).
Key Amendments
1. Income Tax Act (Cap. 470)
- Minimum Top-Up Tax: A new tax under Section 12G targeting multinational enterprise groups with consolidated annual turnovers of at least EUR 750 million. The tax ensures that such groups pay an effective tax rate of at least 15% in Kenya.
- Significant Economic Presence (SEP) Tax: Section 12E is amended to cover services delivered "through the internet or an electronic network including through a digital marketplace."
- Advance Pricing Agreements (APAs): Introduces Section 18G, allowing taxpayers to enter into APAs with the Commissioner for transfer pricing transactions, valid for up to 5 consecutive years.
- Fringe Benefits: Sets the tax rate on employer-provided fringe benefits to the resident corporate rate of tax.
2. Value Added Tax Act (Cap. 476)
- Refund Claims: Amends Section 17 to allow taxpayers to lodge claims for refunds of excess input tax within 12 months from the date the tax became due and payable.
- VAT Exemptions and Zero-Rating: Expands zero-rated supplies to include locally assembled mobile phones, electric motorcycles, electric bicycles, electric buses, solar and lithium-ion batteries, bioethanol vapor stoves, and inputs supplied to local pharmaceutical manufacturers.
3. Excise Duty Act (Cap. 472)
- CBK Licences for Digital Lenders: Limits the definition of "digital lender" to institutions licensed as digital credit providers by the Central Bank of Kenya.
- Specific Duties on Imports: Introduces excise duties on coal (2.5% of custom value) and specific rates for imported self-adhesive plates (25% or KSh 75 per kg), float glass (35% or KSh 200 per kg), and printed paper (25% or KSh 150 per kg).
4. Miscellaneous Fees and Levies Act (Cap. 469C)
- Import Exemptions: Exempts aircraft spare parts and engines imported by aircraft maintenance operators from the Import Declaration Fee (IDF) and Railway Development Levy (RDL).
- Export Promotion Levy: Amends the Third Schedule to lower or adjust rates for specific semi-finished iron or steel products to 10% (from 17.5%).
5. Stamp Duty Act (Cap. 480)
- Corporate Reorganizations: Exempts from stamp duty the transfer of property during an internal corporate reorganization where properties are transferred to shareholders in proportion to their shareholding.
New Obligations
- Country-by-Country (CbC) Reporting: Resident ultimate parent entities of multinational enterprise groups with a consolidated turnover of KSh 95 billion or more must file a CbC report, master file, and local file with the Commissioner within 12 months after the end of the group's financial year.
- Electronic Tax Invoices (ETIMS): Taxpayers must issue electronic tax invoices (ETIMS) that contain specified details, including the words "TAX INVOICE," supplier and purchaser PINs, a serial number, and exact quantities and descriptions of goods or services.
Penalties
- Late Submission of Tax Returns: Amends Section 83 of the Tax Procedures Act to establish new late submission penalties:
- Employment income returns: 5% of tax due or KSh 10,000, whichever is higher.
- Turnover tax returns: KSh 1,000.
- Value Added Tax or Excise Duty returns: 5% of tax payable or KSh 20,000, whichever is higher.
- Any other cases: 5% of tax payable or KSh 20,000 (for entities other than individuals) or KSh 2,000 (for individuals).
- Failure to Comply with ETIMS Integration: Failure to integrate systems or submit transactional data to ETIMS as required by Section 59A attracts a penalty of up to KSh 100,000 for every month or part thereof that the failure continues.
- Failure to Withhold VAT: A person who fails to withhold VAT when required faces a penalty of 10% of the amount not withheld or remitted.
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