The Kenya Finance Bill 2025has been presented to the National Assembly with significant tax proposals that will reshape the country’s tax landscape from July 1, 2025. As your strategic advisory partner, we’re writing this to help business owners understand not just what’s changing, but how these changes will fundamentally alter the way you run your operations.

The reality is stark: these aren’t just policy adjustments that you can absorb with minor tweaks to your accounting. These are operational transformations that will separate thriving businesses from struggling ones over the next three years.

Table of Contents

1. Why the Finance Bill 2025 Matters
2. Key Changes & What They Mean
3. Strategic Actions for SMEs
4. Corporate-Level Opportunities
5. Why We’re Optimistic
6. Our Commitment

Why the Finance Bill 2025 Matters

After decades advising businesses across East Africa, we’ve seen reforms that fall short—and others that reshape economies. Finance Bill 2025 falls into the latter category.

While SMEs may face short-term tax pressure, the long-term payoff is access to capital, government partnerships, and new markets. The playing field is shifting—and those who professionalize quickly will lead the next era of growth.

For broader economic context, the World Bank Kenya Overview projects GDP recovery to 5.3% in 2025—driven heavily by SME productivity and formalization.

Key Changes & What They Mean

Turnover Tax Increase: From 1% to 3%

The turnover tax increase from 1% to 3% affects every business earning between KES 1 million and KES 25 million annually. This means if your business generates KES 10 million in revenue, your turnover tax jumps from KES 100,000 to KES 300,000. For many businesses operating on thin margins, this represents the difference between profitability and loss.

For tax obligations and guidance, refer to the Kenya Revenue Authority’s SME tax section.

Equipment Deduction: 100% Write-Off

The provision allowing full deduction of business equipment represents an unprecedented opportunity for operational improvement. We’re advising clients to accelerate planned capital expenditures to take advantage of this provision.

The financial impact is significant. A KES 500,000 investment in new equipment effectively costs KES 350,000 after tax benefits, assuming a 30% tax rate. For businesses that need to upgrade their operations anyway, this represents government co-financing of their growth strategy.

Medium Enterprise Tax Exemption Scrapped

The removal of medium enterprise exemptions—aligned with OECD SME tax guidelines—raises effective tax burdens by 15–25% for many. Most developed economies don’t maintain separate tax regimes for medium enterprises, instead focusing incentives on innovation, export promotion, and employment creation.

This change will push medium enterprises toward the formal economy’s upper tier, where they can access sophisticated financial instruments, international partnerships, and advanced technology solutions that we typically reserve for larger clients.

Businesses can also explore tech options via Ajira Digital to build internal systems affordably.

Per Diem Increase: From KES 2,000 to 10,000

A practical nod to real operating costs, especially for field teams. It’s a sign the government is listening—and a good sign of smart implementation.

The increased per diem allowance from KES 2,000 to KES 10,000 particularly benefits service businesses with traveling employees. This change alone can save qualifying businesses KES 200,000-300,000 annually in tax-efficient employee compensation

Strategic Actions for SMEs

The new tax environment demands operational sophistication that many SMEs currently lack. This isn’t about hiring a better accountant—it’s about fundamentally changing how you manage your business operations

While the immediate focus is on increased costs and compliance burden, the strategic opportunities within these changes are substantial for businesses that approach them correctly.

Immediate Changes (Next 30 Days)

• Engage Professional Advisors: Engage qualified accountants and tax advisors. The complexity of the new regime requires professional expertise—the same level of financial sophistication we provide to our largest clients.
• Invest in Infrastructure: Use the equipment deduction to adopt ERPs, cloud accounting, and compliance tech.
• Build Compliance Systems: Establish formal compliance procedures. The government’s revenue targets suggest increased enforcement will follow these legislative changes.

Strategic Changes(Next 90 Days)

• Get Supplier-Ready: Develop the operational standards and documentation that large corporations require from suppliers. We’re facilitating several such partnerships for clients who demonstrate compliance readiness.
• Rebrand Around Compliance: Use your formal status as a trust signal in the market.
• Structure for Growth: Prepare for institutional investment opportunities. Formalized, tax-compliant SMEs become attractive targets for the private equity and venture capital firms we advise.

Corporate-Level Opportunities

At Pedo & Associates, we sit at the intersection of big corporations and emerging enterprises. Here’s what we’re seeing:

• Supply Chain Integration: Multinationals need verified SME suppliers. We’re connecting our corporate clients with local partners who are tax-compliant.
• Banking Access: Lenders we advise are launching SME loan products designed for the new regime.
• Tech Enablement: SMEs can now afford scaled-down versions of systems we use with Fortune 500 firms.

Why We’re Optimistic

As a firm that has guided businesses through multiple economic cycles, we’re genuinely optimistic about the Finance Bill 2025’s long-term impact. The SMEs that embrace these changes will emerge as the backbone of Kenya’s formal economy.

According to KNBS, SMEs represent over 33% of Kenya’s GDP—but remain under-leveraged due to informality.

The formal economy is expanding. With GDP projected to rebound to 5.3% in 2025(source: World Bank), the next breakout brands will be the ones that adopt corporate thinking now.

Our Commitment

As your advisory partner, we’re committed to helping SMEs navigate this transition successfully. We’re extending our corporate-level advisory services to qualified SMEs because we believe the success of Kenya’s small and medium enterprises directly correlates with the country’s economic prosperity.