Is the Finance Bill 2025 taxing Kenya toward growth or away from it?

The Finance Bill, 2025, the third under the Kenya Kwanza administration, is anchored in the 2025 Budget Policy Statement (BPS), themed “Consolidating Gains under the Bottom-Up Economic Transformation Agenda for Inclusive Green Growth.”

It aligns with the Fourth Medium-Term Plan of Vision 2030 and proposes sweeping changes that will impact several sectors of the economy, including automotive, agriculture, real estate, ICT, and energy.

The Bill proposes to repeal the 15 percent corporate tax incentive for local motor vehicle assemblers, a measure previously aimed at promoting domestic manufacturing. It also introduces VAT on inputs used in vehicle assembly, increasing upfront capital requirements and undermining competitiveness.

Further, the reclassification of boda bodas, electric bicycles, and electric buses from zero-rated to VAT-exempt status means manufacturers will no longer be eligible for VAT refunds on input costs.

This will likely raise consumer prices and slow adoption of electric mobility.

Compounding the pressure, the Kenya Revenue Authority (KRA) is proposing a 13 percent increase in the Current Retail Selling Prices of vehicles, leading to higher customs duties. Collectively, these changes signal a challenging outlook for the sector.

In a move that could dampen investment in clean energy, the Bill proposes to impose VAT on specialised equipment used in solar and wind energy generation, including photovoltaic modules, DC inverters, and deep-cycle batteries. The proposed tax risks slowing rural electrification and undermines efforts to expand renewable energy access outside the national grid.

The Bill offers some relief for the agricultural sector by exempting from VAT packaging materials used in tea and coffee exports—potentially lowering input costs and boosting competitiveness.

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However, other proposals may negate these gains. Notably, the reclassification of sugarcane transport to milling factories and inputs for animal feed manufacturing from zero-rated to VAT-exempt status removes the ability to reclaim input VAT. This will raise

In the real estate sector, the removal of the 15 percent corporate tax incentive for developers of large-scale housing projects (100+ units) marks a significant policy reversal. Combined with the elimination of VAT exemptions on construction inputs for affordable housing, the proposed changes could raise development costs and price some homes out of reach for the intended beneficiaries.

On a positive note, the Bill proposes a tiered corporate tax structure for startups registered under the Nairobi International Financial Centre Authority: 15 percent for the first three years and 20 percent for the following four. This reflects a deliberate push to nurture innovation, attract tech investment, and position Kenya as a regional startup hub.

As Kenya’s economic landscape evolves, the Finance Bill, 2025 signals a deliberate policy shift aimed at revenue generation, investment realignment, and long-term sustainability.

While certain proposals such as tax relief for startups and agricultural sector support reflect a pro-growth agenda, others, particularly those affecting renewable energy and local manufacturing, may dampen sectoral growth momentum unless mitigated by complementary policies.

Ultimately, how Kenya navigates these changes will determine the pace and inclusivity of its economic transformation journey.

Peter Muindi is a Tax Advisor with KPMG Advisory Services Limited and can be reached at [email protected]. The views and opinions expressed are those of the author and do not necessarily represent those of KPMG