06/05/2025
๐ Finance Bill 2025: What It Means for SMEs & MSMEs in Kenya
The Finance Bill 2025 presents a mixed bag of proposals โ with welcome incentives and increased obligations. Here's a breakdown of the key changes and how they compare with the current regime:
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POSITIVE PROPOSALS
1. Instant Asset Deductions
Now: Capital allowances on tools and equipment are claimed over several years.
Proposed: 100% deduction in the year of purchase for qualifying assets โ improving cash flow and simplifying tax compliance.
2. VAT Refund Timelines
Now: Refunds are often delayed due to verification bottlenecks.
Proposed: KRA to implement faster processing for VAT refunds, easing liquidity for compliant businesses.
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โ ๏ธ CHALLENGES & NEW OBLIGATIONS
3. Turnover Tax (ToT) Adjustments
Now: 1% rate on gross revenue for businesses with annual turnover between KES 1M and KES 50M.
Proposed:
Rate increase to 3%.
Threshold narrowed to KES 500K โ KES 25M.
Businesses with revenue below KES 500K exempted, but those between KES 25M and 50M now pushed to standard taxation โ increasing compliance burden.
4. Penalties for eTIMS Non-Compliance
Now: Limited enforcement and penalties for failure to use eTIMS (Electronic Tax Invoice Management System).
Proposed: Introduction of KES 2 million monthly fine for businesses that fail to comply โ posing a significant risk for informal or transitioning MSMEs.
5. Digital Services & SEP Tax
Now: Digital Service Tax applied at 1.5% on gross transaction value for digital platforms with a Kenyan user base.
Proposed: Replaced by Significant Economic Presence (SEP) Tax, taxing net income of non-resident digital firms โ with broader scope and stricter enforcement.
6. VAT on Financial Services
Now: Most financial services (e.g., credit card issuance, bank transfers) are VAT-exempt.
Proposed: Certain services to attract 16% VAT, raising the cost of doing business for SMEs relying on bank services and digital payments.
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At HFC Kenya CPAs, weโre here to help you interpret, comply, and plan around these changes:
Tax compliance and filings
VAT and eTIMS advisory
Business continuity planning
Reach out to us today to stay ahead of these tax reforms:
๐ Call/Text: 0727 381 739
๐ง Email: [email protected]
๐ Website: www.hfckenya.com
CONTACT USCONTACT US HFC Kenya Contact us HFC Kenya is always the clear choice for MSMEs in East Africa We offer audit and accounting consultancy to businesses and organizations seeking professional services that meet international standards. HFC Kenya, headquartered in Nairobi, Kenya, is the top ch...
