Finance Bill 2025: Employers to Apply Tax Reliefs Automatically.
The Cabinet has approved the Finance Bill 2025, introducing critical changes that will significantly alter how employers handle Pay As You Earn (PAYE) tax calculations. One of the central reforms requires all employers to automatically incorporate eligible tax reliefs and exemptions in PAYE computations.
This directive follows growing concerns over employers failing to apply these tax reliefs, consequently pushing employees to file for refunds with the Kenya Revenue Authority (KRA). The Cabinet acknowledged that this current gap not only burdens the tax administration system but also causes unnecessary delays and frustrations for employees.
A Cabinet statement emphasized that the omission of reliefs by many employers has forced employees to seek refunds directly from KRA. The reforms are aligned with the Bottom-Up Economic Transformation Agenda (BETA), which aims to build a resilient and inclusive economic framework.
One official commented that many employees had been disadvantaged for too long, stating that this move would simplify taxation and ease pressure on KRA. Another noted that the changes aim to ensure a seamless experience for workers while preventing revenue leakage.
Tax Reforms Aimed at Streamlining Refunds and Preventing Abuse
The Cabinet also reviewed past incidents where inflated tax refund claims had led to loss of public funds. By shifting the responsibility to employers and improving oversight, the government seeks to eliminate loopholes previously exploited for fraudulent claims.
This shift is expected to end the long queues previously seen at KRA offices, as employees will no longer need to initiate refund processes for tax reliefs that should have been applied by their employers in the first place.
The reforms will also benefit small business owners, who will now be able to deduct the full cost of everyday tools and equipment in the year they are purchased. This provision removes unnecessary bureaucratic delays in accessing tax reliefs and provides a direct incentive for small-scale entrepreneurs.
The Finance Bill 2025 will also propose amendments to several existing laws, including the Income Tax Act, VAT Act, Excise Duty Act, and the Tax Procedures Act. These revisions aim to expedite tax refunds, close legal loopholes, enhance revenue collection efficiency, and minimize tax disputes.
These proposed changes are in line with recommendations from international financial institutions. The International Monetary Fund (IMF) and the World Bank have made clear that further financing for Kenya hinges on structural economic reforms.
On April 8, the World Bank disclosed during an interview with Bloomberg that unlocking further funding for Kenya would depend on full implementation of reforms agreed upon in the previous year. Among those commitments is the adoption of an electronic Government Procurement system (eGP), which Treasury Cabinet Secretary John Mbadi launched on April 7.
Furthermore, Kenya must consolidate all public funds into a single account at the Central Bank of Kenya to prevent misuse and improve transparency in government expenditure. These measures are intended to reinforce fiscal discipline and support the broader reform agenda the Cabinet has committed to under the Finance Bill 2025.
Finance Bill 2025: Employers to Apply Tax Reliefs Automatically
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