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Kenya’s FY25/26 budget and Finance Bill 2025 aim to drive economic recovery, revenue generation, and fiscal sustainability. With a Ksh 4.2 trillion budget, the government seeks to balance growth, taxation, and public spending while ensuring business competitiveness and social welfare. Below is an integrated analysis of the economic outlook, budget overview, sectoral highlights, and proposed tax measures, along with a comparative review of the FY24/25 and FY25/26 budgets.

1. Economic Outlook for FY25/26

Kenya’s economy has demonstrated resilience, with a projected 5.4% GDP growth in 2025, up from 5.2% in 2024. Key economic indicators include:

• Inflation Control – Inflation declined to 2.7% in October 2024, down from 6.9% in 2023, supported by monetary policy easing.
• Interest Rate Adjustments – The Central Bank Rate (CBR) was lowered from 13% to 12%, improving credit access.
• Foreign Exchange Stability – The current account deficit reduced to 3.4% of GDP, strengthening Kenya’s external sector.
• Sectoral Growth – Agriculture, real estate, financial services, and ICT continue to drive economic expansion.

Kenya’s Bottom-Up Economic Transformation Agenda (BETA) remains central to job creation, industrial growth, and inclusive development.

2. Budget Overview for FY25/26

The Ksh 4.2 trillion budget prioritizes economic recovery, debt management, and social welfare. Key allocations include:

✅ Education – Ksh 701 billion, the largest share, supporting free primary education, TVET expansion, and university funding.

✅ Infrastructure & ICT – Ksh 500.7 billion for road networks, digital transformation, and smart city projects.

✅ Healthcare – Expansion of Universal Health Coverage (UHC), with 22 million Kenyans registered under the Social Health Authority (SHA).

✅ Agriculture – Subsidized fertilizer costs, increasing maize production from 61.7 million bags in 2022 to 85.7 million bags in 2024.

✅ Business & Livelihood Support – Ksh 60 billion disbursed through the Hustler Fund, with a 79% repayment rate.

The budget aligns with Kenya’s fiscal consolidation strategy, ensuring efficient resource allocation and debt sustainability.

3. Sectoral Highlights and Comparative Review of FY24/25 vs. FY25/26

Economic Growth Comparison

FY24/25 GDP Growth: 5.2% (Agriculture, ICT, financial services).

FY25/26 GDP Growth: 5.4% (Manufacturing, real estate, infrastructure).

Budget Allocation Comparison

FY24/25 Budget: Ksh 3.9 trillion.

FY25/26 Budget: Ksh 4.2 trillion.

Revenue Targets: FY25/26 targets Ksh 2.7 trillion, up from Ksh 2.5 trillion in FY24/25.

Sectoral Funding Trends

• Education – FY24/25: Ksh 650 billion → FY25/26: Ksh 701 billion.
• Infrastructure & ICT – FY24/25: Ksh 450 billion → FY25/26: Ksh 500.7 billion.
• Healthcare – FY24/25: Ksh 300 billion → FY25/26: Expansion of UHC.

4. Proposed Tax Measures in Finance Bill 2025

Income Tax Reforms

• Expanded Definitions: Revised definitions for debenture, royalty, and related persons ensure clarity in tax applications.
• Minimum Tax Deductions: Increased from KES 2,000 to KES 10,000, impacting business cash flow management.
• Per Diem Allowance Increase: Raised from KES 2,000 to KES 10,000 per day, covering subsistence, travel, and accommodation expenses.
• Investment Deductions: The 100% and 150% deductions for large projects outside Nairobi and Mombasa are repealed, potentially affecting regional development.
• Corporate Income Tax (CIT) Adjustments: Lower tax rates for Nairobi International Financial Centre Authority (NIFCA)-certified companies and start-ups aim to boost financial markets.
• Digital Asset Tax (DAT): Tax rate on digital assets reduced from 3% to 1.5%, offering relief for cryptocurrency transactions.

Value Added Tax (VAT) Adjustments

• Zero-Rated to Tax-Exempt Schedule: Goods like locally assembled mobile phones, sugarcane transportation, and solar batteries will shift from zero-rated to tax-exempt.
• VAT Refund Period: The time for lodging claims is reduced from three years to two years.
• Electronic Tax Invoices: Businesses must fully adopt electronic tax invoices to improve tax tracking and compliance.

Excise Duty Changes

• Excise Duty on Alcohol: A KES 500 per litre tax is imposed on spirits made from undenatured extra neutral alcohol.
• Eco Levy on Plastic Packaging: Introduces a KES 150 per kilo tax on plastic packaging materials, targeting environmental sustainability.
• Higher Taxes on Imports: Increased excise duty on imported eggs, onions, and potatoes protects local farmers but may raise consumer prices.

Tax Procedures & Business Compliance

• Access to Customer and Company Data: The bill proposes amending Section 59A (1B) of the Tax Procedures Act, allowing the Kenya Revenue Authority (KRA) access to taxpayer data for enforcement.
• Penalty Waivers for Digital Tax Errors: Businesses will not be penalized for delays caused by electronic tax system faults.

5. What Businesses Need to Know to Stay Ahead

• Review tax obligations – Ensure compliance with VAT and excise duty amendments.
• Optimize investment strategies – Assess investment deduction changes before expansion.
• Leverage financial incentives – Start-ups and financial firms should explore lower CIT rates under NIFCA certification.
• Plan for cash flow adjustments – Prepare for Minimum Top-Up Tax deadlines.
• Adopt digital tax systems – Ensure compliance with electronic tax invoice regulations for seamless tax processing.

6. Final Thoughts

Kenya’s FY25/26 budget and Finance Bill 2025 present opportunities and challenges across industries. While incentives foster growth and investment, businesses must adapt to stricter compliance measures and potential tax burdens. Those who navigate these changes strategically will gain a competitive advantage in Kenya’s evolving economic landscape.