The National Treasury has released the much-awaited Finance Bill, 2025, proposing several significant changes that are expected to impact individuals, businesses, and households across the country.

The Bill, intended to broaden the tax base and enhance revenue mobilisation, introduces new taxes, expands existing ones, and grants the Kenya Revenue Authority (KRA) sweeping powers over compliance and data access.

Here's a breakdown of six key changes Kenyans should be aware of:

Taxing Software Distribution as Royalty: The Bill seeks to broaden the definition of "royalty" under the Income Tax Act.

As it stands, the amendment proposes to include "the distribution of software where regular payments are made for the use of the software through the distributor."

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This means that revenue generated from software distribution, where users make recurring payments, could now be subject to income tax under the "royalty" category.

Potential End to Some Stamp Duty Exemptions: A significant proposal involves the deletion of subsection (2) of Section 117 of the Stamp Duty Act.

This subsection currently provides a list of instruments that are exempt from stamp duty.

These exemptions range from instruments related to businesses in export processing zones and transactions on the Nairobi Stock Exchange to the purchase of a first house under an affordable housing scheme.

If this subsection is removed, many of these transactions could become subject to stamp duty, potentially increasing costs.

Formal Recognition of Electronic Tax Invoices for VAT: Amendments to the Value Added Tax (VAT) Act are on the cards, with a proposed new definition of "tax invoice."

This definition will explicitly include "an electronic tax invoice issued in accordance with section 23A of the Tax Procedures Act."

This move formalizes the use of electronic tax invoices within the VAT system, aligning with the ongoing implementation of eTIMS.

Focus on Taxing the Digital Marketplace: The Excise Duty Act is also set for amendments, including the introduction of a definition for "digital marketplace."

This, alongside the existing definition of "digital lender," indicates a clear intention by the government to monitor and potentially levy excise duty on transactions and services within the digital economy.

Harmonizing Goods Classification with EAC Standards: The Finance Bill 2025 specifies that "goods shall be classified by reference to the tariff codes set out in Annex 1 to the Protocol on the Establishment of the East African Community Customs Union."

This move aims to align Kenya's customs procedures and tariff classifications with the broader East African Community framework.   

Phased Implementation of the New Tax Measures: Kenyans should note that the implementation of the Finance Act, 2025 will not be immediate across all sections.

The Bill stipulates that "sections 12 and 56" will come into effect on January 1, 2026, while all other sections are scheduled to commence earlier on July 1, 2025.

This phased approach means that some of these changes will be felt sooner than others.