The Cabinet on Tuesday approved the Finance Bill, 2025 and signaled intention to slash the initially proposed Sh4.3 trillion 2025/26 budget.
In a decisive move to bolster fiscal discipline and economic resilience, Kenya’s Cabinet, chaired by President William Ruto, has approved sweeping budget realignments and legislative reforms aimed at reducing the fiscal deficit, curbing public debt, and fostering inclusive growth.
The announcements, made during the Cabinet meeting at State House, Nairobi, signal a robust commitment to the government’s Bottom-Up Economic Transformation Agenda (BETA) while addressing long-standing structural inefficiencies.
The Cabinet resolved to cap the fiscal deficit at 4.5 per cent of GDP for the 2025/26 financial year, a significant reduction from 5.3 per cent in 2023/24 and 5.1 per cent in 2024/25, with a medium-term goal of reaching 2.7 per cent.
To achieve this, the initial budget estimates of Sh4.3 trillion will undergo substantial revisions before being tabled in Parliament.
Cabinet Secretaries have been directed to collaborate with the National Treasury to identify and implement austerity measures within their ministries, prioritising fiscal space for essential public services.
Analysts view this as a critical step to address Kenya’s rising public debt vulnerabilities, which have strained the economy in recent years.
Finance Bill 2025: Efficiency Over Tax Hikes
The Cabinet approved the Finance Bill, 2025, which emphasises closing tax loopholes and enhancing administrative efficiency rather than introducing new tax burdens.
Key provisions include streamlining tax refund processes, sealing legal gaps that delay revenue collection, and reducing disputes by amending the Income Tax Act, VAT Act, Excise Duty Act, and Tax Procedures Act.
Notably, the Bill targets inflated tax refund claims, a persistent issue that has drained public coffers.
In a bid to support small businesses, the Bill allows full deductions for the cost of everyday tools and equipment in the year of purchase, eliminating delays in tax relief.
Retirees will also benefit from fully tax-exempt gratuity payments across public and private pension schemes, a move designed to ensure dignity in retirement.
Additionally, employers will now be mandated to automatically apply eligible tax reliefs when calculating Pay As You Earn (PAYE) taxes, sparing employees the burden of seeking refunds from the Kenya Revenue Authority.
The Cabinet endorsed the Public Finance Management (Amendment) Bill, 2024, which mandates all county governments to establish County Emergency Funds.
This follows the devastating 2023 El Nino rains, which exposed significant gaps in disaster response.
The amendment, informed by consultations at the Intergovernmental Budget and Economic Council (IBEC) in August 2024, aims to equip counties with the financial tools to respond swiftly to emergencies, safeguarding lives and infrastructure.
Judicial Reforms and Healthcare Expansion
Recognising the unique demands of judicial service, the Cabinet approved the Judges Retirement Benefits Bill, 2025.
The Bill establishes a tailored pension framework for superior court judges, shifting them from the general Pensions Act to a hybrid system of Defined Benefit for current judges and Defined Contribution for new appointees.
Enhanced benefits, including monthly pensions, gratuities, medical coverage, and diplomatic privileges for retired judges and their spouses, aim to protect judicial independence and attract top legal talent.
In healthcare, the Cabinet greenlit the construction of two Level VI teaching and referral hospitals in Bungoma and Kericho counties, in partnership with the African Development Bank.
This aligns with the government’s Universal Health Coverage (UHC) goals, particularly for underserved regions, and is expected to enhance access to specialized care.
To stimulate investment, amendments to the Capital Markets Act will remove shareholder limits in regulated institutions while maintaining strong governance frameworks.
The Cabinet Secretary retains the authority to impose limits on specific licenses, ensuring flexibility. These changes are not expected to impact government revenue directly but aim to deepen financial markets.
The Draft Pest Control Products Bill, 2024, was also approved, modernizing regulations to enhance food safety, environmental protection, and agricultural exports through the establishment of a Pest Control Products Authority.
On the diplomatic front, the Cabinet authorized a Consulate General in Port-au-Prince, Haiti, reinforcing Kenya’s leadership in global peace and security, particularly in supporting Haiti’s stabilisation efforts.
