- Finance Bill 2025 proposes raising the tax-exempt per diem from Ksh2,000 to Ksh10,000 per day.
- The change would reduce the taxable amount for employees on field duties.
- Gratuity payments for retirees under both public and private pension schemes to be fully tax-free.
- The bill aims to ease the financial burden on workers and promote post-retirement dignity.
Kenyan workers could soon enjoy a higher daily tax-free allowance when on official assignments away from their usual place of work. The new Finance Bill 2025, presented to Parliament on April 30, proposes a substantial revision to the existing tax-exempt per diem rate—from the current Ksh2,000 to Ksh10,000.
This allowance, commonly issued to cater for meals, travel, or accommodation during field duties, is only taxed beyond the stated limit. Currently, if an employee receives Ksh5,000 as a per diem, only Ksh3,000 is subject to taxation.
The proposed amendment seeks to ease the tax load on employees, recognizing the rising costs associated with work-related travel and subsistence.
“Section 5 of the Income Tax Act is amended in item (iii) of the proviso to subsection (2)(a), by deleting the words two thousand shillings and substituting therefor ten thousand shillings,” the proposal reads in part.
Tax Exemption for Gratuity to Support Retirees
In another significant shift, the Bill recommends that all gratuity payments—whether under public or private pension arrangements—be exempted from tax. Gratuity is typically paid out as a lump sum when an employee exits the workforce, especially upon retirement.
The proposal, backed by State House, aims to safeguard the welfare of retirees by ensuring they retain the full amount of their end-of-service benefits without tax deductions.
“Retirees will benefit significantly as all gratuity payments, whether in public or private pension schemes, will now be fully tax-exempt, ensuring dignity for Kenya’s senior citizens after retirement,” a statement from State House noted.
Awaiting Parliamentary Approval
The Finance Bill 2025 forms part of a broader budget framework, including possible new taxes and spending plans. Parliament will scrutinize the bill in the coming weeks, with workers across the country closely watching for the final outcome.
Should the proposals sail through, both employed and retired Kenyans stand to gain meaningful financial relief at a time of rising living costs.
