The Finance Bill 2025 introduces several significant reforms, one of which directly impacts employees required to travel for work. A standout proposal is the Increased Threshold of Tax Free Per Diem in the Finance Bill 2025, which seeks to raise the tax-free daily limit from KSh 2,000 to KSh 10,000. This adjustment is designed to ease the burden of rising living costs and offer fair compensation for work-related travel. If passed, the change will take effect on 01 July 2025.
What Is the Per Diem Change About?
Per diem refers to the daily allowance given to employees for expenses incurred while on official duties away from their normal place of work. The current tax-free limit stands at KSh 2,000 per day. Any amount above this is treated as part of taxable income.
However, the proposed change will raise this non-taxable cap to KSh 10,000. With this adjustment, employees will no longer face unnecessary tax deductions on genuine travel-related expenses.
Why This Adjustment Is Timely
Kenya’s cost of living has surged in recent years, especially in urban centres. Accommodation, meals, and transport now cost far more than they did when the current limit was set. Therefore, a KSh 2,000 cap no longer provides adequate relief.
In addition, taxing employees on the excess amount has been widely seen as unfair. This proposal corrects that by aligning tax policy with the realities of today’s economy. It also simplifies reporting and reduces administrative overhead for employers.
Who Stands to Benefit?
The Increased Threshold of Tax Free Per Diem in the Finance Bill 2025 offers notable advantages across the board. Various groups will see practical improvements in how business travel is handled and compensated.
For Employees
- Tax relief means more take-home pay during work trips
- Allowances will better match actual costs
- Confidence and job satisfaction improve when expenses are fairly covered
For Employers
- Easier compliance with updated tax policies
- Streamlined payroll processing and fewer disputes
- Competitive advantage in attracting staff for mobile roles
For the Government
- The change modernizes tax law to reflect economic conditions
- Compliance may improve with a more realistic threshold
- Greater trust and transparency in tax administration
Side-by-Side Comparison
To understand the difference the proposal would make, consider these figures:
- Current non-taxable per diem: KSh 2,000 per day
- Proposed non-taxable per diem: KSh 10,000 per day
- Overall increase: 400 percent
Clearly, the proposed limit better represents the actual costs incurred during official duties outside the usual work location.
What You Can Do to Prepare
Although the proposal has not yet become law, it’s wise to start planning now. Taking early steps will help avoid confusion later and allow for a smooth transition.
- Follow updates on the Finance Bill 2025 from credible sources
- Review your organisation’s travel and HR policies
- Begin training your payroll and finance teams
- Notify staff about the likely changes and how they’ll be affected
- Update payroll systems to reflect the new threshold once confirmed
Real Impacts on Kenyan Workplaces
For professionals who frequently travel, the Increased Threshold of Tax Free Per Diem in the Finance Bill 2025 is more than a tax tweak—it’s a practical shift toward fairness. It recognises that business travel is not a luxury but a necessity, and that workers shouldn’t be penalised for doing their jobs.
Moreover, companies benefit from less red tape, fewer staff complaints, and better retention. Government, too, gains from a cleaner and more modern tax code that supports formal employment.
This proposal in the Finance Bill 2025 marks an important step toward aligning Kenya’s tax policy with current economic realities. By increasing the tax-free per diem to KSh 10,000 per day, it addresses employee concerns, supports businesses, and promotes fairness across the board.
As we approach the effective date of 01 July 2025, both individuals and organisations should take proactive steps to stay informed and prepared. The Increased Threshold of Tax Free Per Diem in the Finance Bill 2025 represents meaningful progress toward a more equitable working environment in Kenya.