Finance Bill 2025 Highlights Value Added Tax (VAT) Changes 1. e-Invoicing Mandate Expanded o Now required for exempt supplies, enhancing KRA oversight. 2. Refund Timelines Shortened o VAT refund claims reduced from 24 to 12 months; bad debt refunds from 3 to 2 years. 3. Anti-Avoidance Measures o VAT liability if exempt/zero-rated goods are misused (e.g., resold). 4. Exemptions Removed o 16% VAT imposed on:  Aircraft parts (except maintenance-related).  Affordable housing inputs (transitional relief until 2026).  Solar/wind energy equipment (conflicts with green energy goals). o Zero-rated to exempt shifts:  Electric vehicles, solar batteries, pharmaceuticals – input VAT non-recoverable, raising consumer prices. Income Tax Act Amendments 1. Royalty Definition Expanded o Includes software distribution payments, increasing compliance burdens but aligning with KRA’s stance post-Seven Seas Technologies case. 2. Investment Incentives Removed o 100%/150% investment deductions revoked for projects outside Nairobi/Mombasa (>Ksh 1B) and SEZs, potentially discouraging regional investment. 3. Loss Carry-Forward Limited to 5 Years o Negatively impacts long-term projects (e.g., infrastructure, energy) with delayed profitability. 4. Capital Gains Tax (CGT) Changes o Double tax relief on CGT repealed, risking dual taxation. o Exemption for listed securities to boost stock market liquidity. 5. Nairobi International Financial Centre (NIFC) Incentives o 15% corporate tax for 10 years (then 20%) for certified firms investing Ksh 3B+ and employing 75% Kenyan senior management. 6. Digital Economy o Digital Asset Tax reduced to 1.5% (from 3%) to encourage crypto transactions. o Significant Economic Presence Tax (SEPT):  Ksh 5M turnover exemption removed, taxing all non-resident digital service providers. 7. Employee Benefits o Tax-free per diem increased to Ksh 10,000/day (from Ksh 2,000). o Employers must apply all PAYE reliefs upfront, reducing refund claims. Excise Duty Act Amendments 1. Digital Lender Definition Narrowed o Excludes banks/Saccos, targeting unregulated online lenders. 2. Tariff Harmonization o Aligns with EAC Common External Tariff, reducing border disputes. 3. New/Increased Rates o 35% excise duty on imported float glass (EAC-origin exempt). o Coal taxed at 2.5% to discourage pollution. Tax Procedures Act Updates 1. KRA Powers Enhanced o Access to taxpayer data, including trade secrets (privacy concerns raised). o Agency notices extended to non-residents (e.g., digital platforms). 2. Refund Delays o Processing time extended to 120 days (180 if audited), straining cash flow. 3. Penalty Waivers o Cabinet Secretary may waive penalties due to iTax errors. Miscellaneous Fees & Levies 1. Import Levies o IDF/RDL exemptions narrowed to specific aircraft parts (e.g., >2,000 kg). o Export Promotion Levy reduced from 17.5% to 5% for steel imports, aiding construction. #financebill2025