Govt to slash Digital Tax from 3% to 1.5% in Finance Bill 2025
Treasury Cabinet Secretary John Mbadi has revealed a proposed reduction of the digital tax from 3% to 1.5% in the Finance Bill 2025.
Speaking during a town hall meeting held at Daystar University aimed at unpacking the finer details of the upcoming Finance Bill 2025, Mbadi explained that the decision was reached after several considerations, one of which involved aligning with players in the digital sector, many of whom are small-scale business owners.
This move, he said, also aligns with the turnover tax, which targets the same demographic and has similarly been reduced to 1.5%.
“It would not be fair to reduce the turnover tax, which targets the same group as the digital tax, and leave the digital tax unchanged. For the sake of uniformity, we’ve proposed bringing it down to 1.5%, just as it,” Mbadi said.
He noted that the digital tax reduction is informed by two primary reasons.
“First, we have the turnover tax, which is designed for small business operators, and that was recently lowered to 1.5%. Many players in this sector fall within this category and have argued that they deserve similar treatment. We agreed that it would be discriminatory not to harmonize the rates,” he stated.
The second reason, he added, is tied to improving tax compliance.
“Past experiences have shown that lowering tax rates on consumables leads to better compliance and increased revenue collection. We strongly believe that by reducing the digital tax to 1.5%, we will see greater compliance and, ultimately, higher revenue,” he added.
“When you set lower tax rates—especially on consumption taxes—you encourage more people to comply. This enhances overall revenue collection,” he emphasized.
The Finance Bill 2025 was approved by the Cabinet on April 29, 2025, and presented to the National Assembly on April 30, 2025.
The bill supports the 2025/26 fiscal year budget, which was initially projected at Ksh4.263 trillion.
However, the figure is expected to be revised downward by at least Ksh100 billion as part of efforts to reduce the fiscal deficit to 4.5% of GDP, down from 5.1% in the 2024/25 financial year.
During the town hall meeting, the CS also assured Kenyans that the Finance Bill 2025 would be more “people-friendly,” noting that it does not aim to burden the average citizen.
Legislative proccess
The Finance Bill 2025 is currently in the National Assembly for its first reading.
It will go through a public participation process and scrutiny by relevant committees. The second reading will involve a debate on the bill’s general principles, followed by the committee stage, where each clause will be examined in detail.
The third and final reading will lead to the bill’s approval before being forwarded to the President for assent.
To take effect at the beginning of the new fiscal year on July 1, 2025, the bill must be signed into law by June 30, 2025.
