05 Jun How Recent Policy Shifts Are Reshaping the Kenyan Corporate Sector
Often referred to as the East African superpower, Kenya is undergoing numerous policy changes. These policies are drafted in an attempt to attract revenue, and investment and align with global practices. The government has in recent past been making various changes to the country’s laws, and many of these laws have a direct impact on the corporate sector, as it were, to survive the corporate world is always trying to remain agile and have strategic foresight.
Fiscal Reforms and the New Era of Taxation
While vowing not to preside over a bankrupt country or one in debt distress. The Kenyan president vowed in an interview with a local TV station in May 2024, that he will raise taxes from 14% to 22% by the end of his term in 2027. “It’s going to be difficult. I have a lot of explaining to do, people will complain but I know they will appreciate. We have t o begin to live within our means,” He added.
Over the last two years, the president’s statement has come true, the government has been pushing to broaden the tax base, mainly through the Finance Act 2023 and Finance Act 2024. The upcoming Finance Bill 2025, is also generating a lot of public discourse, and it is predicted that the proposals contained therein are going to have major impact on the corporate sector and the Kenyans’ lives.
Businesses have been hit hard with the new fiscal demands since the Finance Bill 2023 was enacted into law. The move to double VAT on petroleum products to 16% led to higher consumer prices since it had a direct impact on logistics and the products supply chain. The introduction of the Affordable Housing Levy added to the strain despite legal tussles, a 1.5% deduction was imposed on payrolls.
The revamped NSSF Act, 2013 also came to life in 2024 after the courts okayed its implementation further raising deductions and the new Social Health Insurance Fund (SHIF) which introduced uncapped contributions for employees. All these ultimately hiked the cost of formal employment across the board. The Act raised pension contributions to 12%, (the employee contributed 6% and the employer expected to match it with 6%) replacing the previous KES200 per month contribution.
According to the government, the higher deductions would help improve the saving culture. The recent figures announced by the president, indicate that Kenyans have saved in excess of KES280 billion in two years. The head of state further indicated that by the end of this year, NSSF contributions will have doubled the 60-year KES320 billion.
The Small and medium enterprises (SMEs) were not spared either, Turnover Tax was raised to 3% affecting the business’s cash flow and growth, and then came the e-TIMS electronic invoicing system, a compliance hurdle that forced businesses to digitize their invoicing or risk being deregistered.
To get revenue from the growing online space the government saw it fit to make changes in the digital economy landscape, with the Digital Service Tax (DST) replaced by the Significant Economic Presence (SEP) tax and the new Withholding Tax on digital content monetization.
Fast forward to 2024, as Kenyans were still adjusting to the new changes, came the Finance Act 2024 which ushered in significant changes. While the Act dropped contentious proposals like the motor vehicle tax and VAT on bread and others it formalized the SEP tax framework clarifying tax obligations for foreign-owned digital businesses.
To align with global tax reforms, Kenya introduced a 15% minimum Top-Up Tax (MTT) for multinational corporations (MNEs), this was to ensure the foreign companies pay a baseline level tax, regardless of local incentives.
Finance Bill 2025
This year, businesses are closely watching the Finance Bill 2025, lobby groups have already raised a red flag claiming that the upcoming Bill is likely to be burdensome to the ordinary Kenyans through unfair taxing. The government has however maintained that no new taxes have been proposed.
The Bill is expected to bring significant changes, one of the most eye-brow raising being the restriction of tax loss carry-forward to just five years and removes the Commissioner’s power to extend beyond 10 years. This is expected to affect capital intensive projects and startups with long development periods, massively raising their tax rates.
Section 15 of the Bill proposes repealing of the 15% Corporate Income Tax (CIT) rates for affordable housing developers and motor vehicle assemblers. This seeks to encourage investment into the real estate and local assembly industry sectors.
Separately, according to a Business Daily May 5, 2025 report, highlighting likely threat to key sector gains, the National Treasury, in one of the proposals in the Bill seeks to delay tax incentives meant to encourage investments in Special Economic Zones (SEZ), and upcountry investments. The article cites the proposed removal of sections of the Income Tax Act that allows companies to claim investment allowances of up to 100%, a move largely viewed as threatening the progress made.
The Finance 2025 Bill in Section 2 also broadens the scope of royalty Withholding Tax (WHT) to software distribution, where regular payments are made and introduce WHT on goods supplied to public bodies, effectively adding new costs. The expansion of SEP tax to virtually all non-resident digital services, regardless of turnover, signals an even wider net for the digital economy.
On the other hand, there’s a beacon of light: generous tax incentives proposed for the Nairobi International Financial Centre (NIFC), aiming to cement Kenya’s role as a regional financial hub and attract significant investment.
There is also rising concern among stakeholders about a proposal in the Finance Bill 2025 that seeks to grant Kenya Revenue Authority (KRA) increased access to taxpayers data by deleting section Section 59A (1B) of the Tax Procedures Act introduced in December 2024. The section bars the Commissioner from demanding that a taxpayer integrate or share data concerning trade secrets or personal information. This proposal is seen as retrogressive as it opens up a possible avenue for KRA to access personal data without a court order, rising privacy and surveillance concerns.
Non-fiscal policies
Aside from taxes, the policy landscape is also defined by non-fiscal regulations that continue to alter business operations and environmental, social, and digital governance standards.
The Sustainable Waste Management (Extended Producer Responsibility) Regulations, 2024 represent a major shift, producers are now legally responsible for organizing the management of waste from their products and packaging, a major step to reducing pollution and boost accountability. This however, translates to new operational costs, investment in recycling infrastructure, therefore slimmer margins and likely translate to higher prices for consumers.
The strict Environment regulations under the Environmental Management and Coordination Regulations, 2024 also demand higher standards on air and water quality, pushing industries towards sustainable, cleaner technologies. In a broad sense, Environmental, Social, and Governance (ESG) compliance is now a regulatory expectation, influencing investor decisions and brand reputation.
With an active Office of the Data Protection Commissioner (ODPC) that ensures non-compliance carries heavy penalties and fines, businesses are also expected to invest heavily in data privacy officers, cybersecurity, and transparent data handling practices under The Data Protection Act, 2019. However, proposed changes under the Finance Bill 2025, to grant KRA access to trade secrets and customer data, if passed could create legal and privacy dilemma for businesses.
Labor and Trade Laws
On labour laws, The Employment (Amendment) Bill, 2023, though not enacted into law, seeks to regulate employee transfers. If passed the proposal could add an administrative burden to businesses and operations, as it may hinder employee flexibility. Periodic minimum wage adjustments also continue to exert pressure on payroll costs, particularly for the labour-intensive sectors.
Buy Kenya Build Kenya
Finally, this policy seeks to reduce dependency on imports by promoting industrial growth, job market expansion and reduce dependency on imports. Buy Kenya Build Kenya’s strategy offers significant opportunities for local manufactures. As it were, Ministries, Departments and Agencies (MDAs) are currently required to reserve a minimum of 40% of their procurement budget for locally produced goods and services as a condition of Government and Private Sector procurement programs.
However, shifting global tariffs remain a challenge for Kenyan exporters, forcing constant change in strategy and market diversification. On the other hand, the expiry of the African Growth Opportunity Act (AGOA) this year presents a great challenge for the local markets. Kenya is likely to lose of the key market it has enjoyed for over two decades if the AGOA is not renewed.
Agility and Strategic Communication as the New Currency.
In conclusion, going by recent events, it is likely that the corporate sector will continue experiencing a turbulent policy environment. These changes from Finance Acts and shifts demanded by environmental and digital regulations mean that businesses will incur high operational costs, shifting regulatory costs and compliance burdens.
However, these challenges offer opportunities for businesses agile enough to adapt to the changes; new technologies, leverage on incentives, innovations in sustainable practices, and local manufacturers ready to meet domestic demand.
To thrive in this ever-evolving corporate landscape, business entities must have the ability to forecast, adapt, and most importantly strategically communicate these transitions to all stakeholders.
FELT Africa offers uniquely curated services for various corporate clients on navigating policies identifying deficiencies, and propose targeted improvements that align with specific business’ goals; from offering insights on how to optimize operations for compliance and craft effective communication strategies that ensure seamless transitions for businesses and their clients.