Finance Bill 2025 raises minimum taxable daily per diem to Ksh.10K

The Finance Bill, 2025, seeks to raise the minimum daily travel allowance employees get, commonly known as per diem, exempt from taxation under the Income Tax Act.

Under the current tax regime, salary, leave pay, sick pay, payment in place of leave, commission, bonuses, subsistence, travelling, entertainment, or other allowance an employee gets are taxable income under one’s ‘gains and profits.’

However, the first Ksh.2,000 per day of subsistence, travelling and entertainment allowance are excluded from the calculation of one’s gains.

Now, the proposed law seeks to amend Section 5 of the Income Tax Act to raise the threshold to Ksh.10,000.

“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 the words ‘ten thousand shillings’,” the Bill reads.

The Cabinet has sent the Finance Bill 2025 to Parliament for passage ahead of the 2025/26 budget presentation next month.

Treasury hopes to raise up to Ksh.30 billion in extra revenues from the Bill.

However, the government has not introduced new taxes, following last year's deadly protests against tax hikes in the 2024 Finance Bill.

Treasury Cabinet Secretary John Mbadi has instead announced measures to relieve taxpayers, such as exempting tea and coffee packaging from tax, reducing the digital assets tax from 3 per cent to 1.5 per cent, and exempting retirees' gratuity payments from tax. 

Mbadi’s ministry targets reduced budget proposals by Ksh.130 billion from the original Ksh.4.3 trillion 2025/26 budget.

This is a deficit of 4.5 per cent of GDP, down from 5.1 per cent in the 2024/2025 fiscal year.