The Finance Bill, 2025 appears to be a cautious response to avoid similar unrest that ensued across the country following the rejection of the 2024 Bill that proposed controversial taxes, especially Value Added Tax (VAT) on bread and the motor vehicle tax.

Unlike the 2024 Finance Bill, experts warn, the 2025 spending plan avoids direct tax hikes, focusing on compliance and loophole closures.

Experts warn some of the specifics measures contained in the Bill may hurt Kenyans’ incomes and spending power in the upcoming financial year that kicks in on July 1.

The bill highlights notable changes like expanding VAT to digital services and reclassifying certain zero-rated items as exempt, potentially increasing consumer prices.

It also proposes granting KRA powers to access business data. It also introduces tax incentives for the Nairobi International Financial Centre and small businesses.

The document tabled in the National Assembly proposes that Value Added Tax (VAT) be applicable on certain products, initially zero-rated, removing exemptions. The trickledown effect is that manufacturers cannot claim tax refunds and will likely pass on the cost to consumers; hence, consumers will pay more for goods and services.

The removal of tax exemption is in the efforts to reduce tax expenditure. Economists say this will see massive employment cuts, as consumers cut back on spending, and consequently, manufacturers close shops.

With the bill now in parliament and undergoing, some producers stare at a possibility of being denied tax refunds, as their products become liable to Value Added Tax.

Economist Samuel Nyandemo has said that the government is anchoring taxes on certain acts with a lot of influence from the International Monetary Fund (IMF), which may ultimately lead to an increase in certain prices.

“Much of these policies are enforced upon us by the IMF and the World Bank. We should have homegrown solutions in terms of our budget, not relying heavily on international donors,” economist Samuel Nyandemo.

“Taxation on pension funds and the benefits is likely to affect retirees and other pensioners, because if you tax what the retirees have saved, it will drastically reduce their disposable income,” Nyandemo notes. This will erode the ability to consume and may lead to earlier deaths.

The economist has said that the document in its entirety is not friendly to job generation, as will lead to price hikes and the disposable income will contract.

“Many consumers will be tightening their belts, and that will affect consumption and production because producers will not produce what will not be consumed in the market, scaling down employment,” he said reiterating a need for a tax system which will not only spur growth but which will also encourage consumption.

According to Chief Economist at Mentoria Economics Ken Gichinga, the removal of items from the VAT zero rating is the National Treasury trying to reduce tax expenditures like tax refunds, which are a source of cash flow for businesses.

“If those refunds are reduced, then it means many businesses that depend on those refunds will be impacted by not being able to support the cash flow of the business and may lead them to slowing down and also increasing costs or passing on costs to consumers,” Mr Gichinga said.

All inputs and raw materials, whether produced locally or imported, supplied to pharmaceutical manufacturers in Kenya for manufacturing medicaments, are proposed to be amended to be tax exempt, currently zero rated.

Transportation of sugarcane from farms to milling factories, the supply of locally assembled and manufactured mobile phones, the supply of motorcycles and the supply of electric bicycles have been proposed to move from zero rating to tax exempt.

The economist has pointed out that the Bill has proposed a tax band that puts Kenyans earning between Sh30,000 and Sh500,000 in the same tax bracket.

“We had hoped we’d see a lot more tax bands. Putting somebody earning almost, Sh32,000 and Sh500,000 in the same tax band is not very progressive,” Gichinga notes that a progressive tax band should have a higher tax rate for high-income earners.

Economist Samuel Nyandemo concurs. He says, “We must also tax heavily those who are in the higher bracket. That will enhance some canon of equity when it comes to taxation”.

By making certain goods tax exempt, the government is by extension taking away billions in tax refunds from an economy that is already grappling with cash flow constraints.

The bill proposes access to personal data, which experts say is problematic, as the revenue authority can access personal data, which, in terms of trade secrets, can be lost to the revenue authority.

In its efforts to increase the tax base, the government is also proposing excise tax on digital lenders who are unlicensed this, in a way, legitimises the lenders who are predatory in lending

“Bringing them to pay excise tax, it’s as if now we are legitimising an industry that should not actually be legal in the first place,” Ken Gichinga said.

The bill may not have introduced many new taxes, but experts reckon that the measures the taxman is applying might create a cash flow crunch for businesses.

“Money might still not be available in the economy; the cash flow might be low, which might start affecting unemployment,” warned Mr Gichinga.