The proposed Finance Bill 2025 introduces critical changes to Income Tax- Withholding Tax Kenya, specifically targeting scrap sales, public sector supplies, and shipping services. These amendments aim to close loopholes, enhance tax enforcement, and ensure that the law aligns with actual business practices.

If enacted, the bill will take effect on 1 July 2025, affecting businesses, individuals, and public entities. Here is a breakdown of what is changing, what it means, and how to prepare.

Income Tax Withholding Tax Kenya Now Covers Scrap and Public Supplies

Proposed Changes to the Law

The Finance Bill 2025 proposes to formally include the supply of goods to public entities and the sale of scrap by resident persons under Section 10 of the Income Tax Act. Although the Tax Laws Amendment Act of 2024 introduced withholding tax on these two activities, the amendment lacked legal enforceability because it was not included in Section 10, which provides authority for withholding tax application.

Now, the bill seeks to fix that gap.

Withholding Tax Becomes Enforceable

By explicitly listing these items under Section 10, the law makes withholding tax enforceable on both:

  • The supply of goods to public entities
  • The sale of scrap by resident persons

This legal backing ensures that public entities and scrap buyers must deduct and remit withholding tax. It also provides the Kenya Revenue Authority (KRA) with the power to enforce compliance, reducing tax evasion in these sectors.

Why This Matters

This update to Income Tax -Withholding Tax Kenya is significant for both sellers and buyers:

  • Public institutions must adjust procurement systems to accommodate withholding tax deductions.
  • Businesses that sell to public entities or deal in scrap need to update their invoicing and reporting processes.
  • The change closes a compliance gap that has existed since the 2024 amendment.

Transition Period

With the proposed effective date of 1 July 2025, businesses have a short window to prepare. Now is the time to:

  • Train procurement teams
  • Adjust accounting systems
  • Notify vendors about the upcoming changes

Income Tax Withholding Tax Kenya and Shipping Services

Proposed Changes to Shipping Payments

The Finance Bill 2025 also proposes a change regarding payments made to non-resident ship owners or charterers. Currently, a 2.5 percent withholding tax is applied as outlined in the Third Schedule of the Income Tax Act. However, these services are not listed under Section 35, which officially defines income subject to withholding tax.

The new bill aims to correct that by including these services in Section 35.

Shifting the Compliance Burden

Under this proposed amendment:

  • The responsibility to deduct and remit tax will fall on the resident person procuring the shipping service, not the foreign service provider.
  • This makes it easier for tax authorities to enforce the rule, as the payer is located in Kenya and is easier to monitor.

Implications for Businesses

Kenyan companies that engage international shipping services should take note. From 1 July 2025, they must:

  • Deduct the 2.5 percent tax when making payments to non-resident ship owners or charterers
  • Remit the tax to KRA on time
  • Maintain proper records to show compliance

This shift enhances the enforceability of Income Tax -Withholding Tax Kenya on foreign service transactions, ensuring that tax obligations are met within the country’s jurisdiction.

Key Action Points for Businesses

To prepare for these changes, businesses and public entities should take the following steps:

  • Review supplier contracts: Ensure that agreements with public entities and scrap buyers include withholding tax terms.
  • Train staff: Educate your accounting and procurement teams on the new rules and responsibilities.
  • Update accounting software: Modify invoicing and payment systems to reflect withholding tax deductions.
  • Plan for the effective date: Ensure everything is in place before 1 July 2025 to avoid non-compliance penalties.
  • Consult professionals: Tax experts can guide your business through compliance and implementation.

The Finance Bill 2025 introduces important legal updates to Income Tax- Withholding Tax Kenya, making it enforceable on transactions involving the supply of goods to public entities and the sale of scrap. Additionally, it strengthens compliance obligations on international shipping services by placing the burden on Kenyan service recipients.

These amendments will streamline tax collection, reduce evasion, and ensure clarity in enforcement. With an effective date of 1 July 2025, now is the time for businesses, institutions, and individuals to take action.

By understanding and preparing for these changes early, you will stay ahead of regulatory demands and maintain full compliance under Kenya’s evolving tax framework.