President William Ruto today chaired a Cabinet meeting at State House, Nairobi, where top government officials were directed to collaborate with the National Treasury in revising ministry and departmental budgets.
The move is aimed at tightening fiscal discipline and reducing the budget deficit to 4.5% of GDP in the 2025/26 financial year—down from 5.3% in 2023/24 and 5.1% in 2024/25—with a medium-term target of 2.7%.
In line with this directive, the initial KSh4.3 trillion budget estimates will be revised significantly before they are presented to Parliament. The adjustments are part of a broader austerity strategy designed to curb public debt, strengthen financial management, and create space for vital public services.
Cabinet also approved the Finance Bill, 2025, which proposes sweeping tax and expenditure reforms aimed at plugging revenue leaks, improving tax efficiency, and minimizing the need for new taxes. The bill targets long-standing loopholes in tax expenditures, particularly inflated tax refund claims that have drained public funds.
Rather than introducing new taxes, the Bill seeks to streamline revenue collection through legal amendments and better tax administration. Proposed changes include overhauls to the Income Tax Act, VAT Act, Excise Duty Act, and the Tax Procedures Act. These would expedite tax refunds, close legal gaps, and reduce costly tax disputes.
Small businesses are set to benefit under the new proposals, which would allow full deductions on essential tools and equipment in the year of purchase, fast-tracking access to tax relief. Meanwhile, retirees will see all gratuity payments made from both public and private pension schemes become fully tax-exempt—a significant gain aimed at ensuring dignity in retirement.
The Bill also mandates employers to automatically apply all eligible tax reliefs and exemptions when calculating Pay As You Earn (PAYE) deductions, addressing widespread non-compliance that has forced many employees to seek manual refunds from the Kenya Revenue Authority.
These reforms are central to the Government’s Bottom-Up Economic Transformation Agenda (BETA) and underscore its broader ambition to build a fiscally sound, inclusive economy.
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