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Employees in private sector will be entitled to higher subsistence allowance if proposals by the National Treasury to increase subsistence allowance by 400pc is adopted by the National Assembly.
While presenting the Budget Statement for fiscal year 2025/26 before the National Assembly, National Treasury and Economic Planning Cabinet Secretary John Mbadi said the proposal to amend the income tax act in the Finance Bill 2025 to raise private sector employees’ allowance will bring equity.
“Mr. Speaker, the current tax-free daily subsistence allowance of Ksh 2,000 for private sector employees on official duties outside their usual workplace is lower than that of the public sector employees. To enhance equity, the Bill proposes to increase the tax-free daily subsistence allowance for private sector employees from Ksh 2,000 to Ksh 10,000,” said Mbadi.
Employees in both private and public sector are also set for better earnings following treasury’s proposal to exempt gratuity payments from income tax.
“Speaker, the Tax Laws (Amendment) Act, 2024, exempted gratuity payments from income tax. However, the provision is not clear whether all gratuity, including from private pension schemes is exempted from tax. In this respect, the Bill proposes to amend the Income Tax Act to clarify that all gratuity payments, whether from public or private sources, are exempt from tax,” Mbadi told Members of Parliament.
Treasury has also yielded to calls to lower taxes on digital assets. In his speech, Mbadi has proposed to reduce the tax by half, a win to holder of digital assets.
“Speaker, to encourage wider participation in virtual assets transactions, especially among the youth, the Bill proposes to reduce the digital asset tax rate from 3pc to 1.5pc,” he stated.
Kenyans who are seeking mortgages for construction of residential houses will also benefit from tax relief claims on interest payment on the mortgage which currently covers individuals with mortgages for purchasing or improving residential houses.
Mbadi says the proposal to amend the Income Tax Act to allow Kenyans who take up mortgages for construction of residential houses to claim tax relief on interest payment will support home ownership and align with Affordable Housing agenda.
Other winners in the budget include tea processors will be allowed to import tea packaging materials at a lower rate of 10pc.
Wheat importers have also been granted an extension of duty remission at the rate of 10pc.
“Mindful of wheat farmers in Kenya, EAC Ministers agreed on duty remission of wheat at a rate of 10pc, instead of the Common External Tariff rate of 35pc, provided the millers who intend to import wheat under the duty remission must first purchase locally produced wheat,” Mbadi stated.
Rice importers are also set to pay tariffs on imports at the rate of 35pc or $200 per metric tonne, whichever is higher, instead of the CET rate of 75pc or $345 per metric tonne after Kenya was allowed to extend the stay of application on the EAC Common External Tariff.
Kenya was also granted an extension of duty remission on inputs for assembly of telecommunication devices including mobile phones, laptops and tablets, a move which Mbadi expects to promote local assembly telecommunication equipment.
Importers of inputs used for assembly of cranes will also do so duty free under duty remission.
Animal feed manufacturers will also import inputs for production of animal feeds duty-free under the EAC Duty Remission Scheme in what Treasury expects to help reduce production cost of animal feeds.
Budget losers
In a bid to increase revenue collection, Treasury is proposing to amend the Tax Procedures Act, 2015 to allow the Kenya Revenue Authority to recover taxes from non-residents.
“To enhance the Commissioner’s ability to recover unpaid taxes from non-residents, the Bill proposes to amend the Tax Procedures Act to expand the scope of agency notices to include non-resident persons,” said Mbadi.
Companies will also expected to pay the Minimum Top-Up Tax at the end of the fourth month following the close of a company’s accounting period.
Treasury is also seeking to define Tax Invoice issued at the point of sale with issuance of tax invoices for all supplies whether taxable or exempt in a bid to reduce tax leakages.
Other losers in the budget include importers of plastic products, including plates, self-adhesive plastics, and printed polymers who will now be subjected to excise duty at 25pc of the excisable value or Ksh 200 per kilogram, whichever is higher.
