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1. Automatic Application of PAYE Reliefs by Employers
   • Starting 1 July 2025, employers are required to automatically apply all applicable tax reliefs and exemptions when calculating PAYE.
   • This means personal relief, insurance relief, mortgage interest deductions, and pension (or retirement fund) contributions must be considered up front by employers.
   • The goal is to reduce delays and burden: previously, employees often had to apply to KRA for reliefs/refunds after filing.
2. Higher Tax-Free Per Diem
   • The Finance Act, 2025 amended the daily tax-free per diem limit (i.e., allowances for travel) from KSh 2,000 to KSh 10,000 per day.
   • This is a significant increase, likely reflecting rising costs, and means more per diem can be paid tax-free (without needing detailed eTIMS invoices) up to that limit.
3. KRA Validation of Income & Expenses (Starting Jan 2026)
   • From 1 January 2026, KRA will start validating declared income and expenses for both individual and non-individual (i.e., businesses) tax returns.
   • The validation will use data from:
     1. TIMS / eTIMS invoices (electronic tax invoice system),
     2. Withholding income tax gross amounts,
     3. Import records from the Customs system.
   • For declared expenses to be accepted, they must be backed by valid electronic tax invoices (e-invoices) with the buyer’s PIN, where required.
4. Changes from the Tax Laws (Amendment) Act, 2024
   Some important changes (effective from 27 December 2024) under the Income Tax Act include:
   • Repeal of some reliefs: Affordable Housing relief and Post-Retirement Medical Fund relief are repealed, but contributions to these funds are now deductible for PAYE purposes.
   • New deductible contributions:
     1. Employee contributions to the Social Health Insurance Fund (SHIF) are now deductible.
     2. Mortgage interest deductions have increased (the cap is now KSh 360,000/year i.e. KSh 30,000/month).
     3. Contributions to registered pension / provident funds also capped at KSh 360,000/year.
   • Tax-free benefits threshold: Any benefit, advantage, or facility received by an employee that’s worth less than KSh 60,000 annually is not subject to tax.
   • Meal benefits: The tax-free threshold for employer-provided meals increases to KSh 60,000/year (i.e., KSh 5,000/month).

1. Significant Economic Presence (SEP) Tax Regulations (Draft)
   • There is a draft regulation: Income Tax (Significant Economic Presence Tax) Regulations, 2025.
   • This targets non-resident entities that have a “significant economic presence” in Kenya (even if they don’t have a physical location) — which could mean more foreign digital businesses will be taxed.
   • The draft regulation was open for public comment as of the notice.
2. Penalty for Late Withholding
   • Under the Tax Laws (Amendment) Act, 2024, there’s now a 10% penalty for persons who fail to withhold and remit the required withholding tax on time.
   • This is important for employers and businesses that withhold PAYE, withholding tax, etc. — non-compliance can attract significant penalties.
3. Refunds / Overpaid Taxes
   • The amendment to the Tax Procedures Act (via the Tax Laws Amendment) changed the timeframe for refund applications: for income tax, overpaid tax refund applications must be made within 5 years.
   • For some other taxes, the refund window is shorter (e.g., 12 months) depending on the tax type.
4. Retirement Fund Definition Change
   • The Finance Bill 2025 (now Act) proposes to amend the definition of “individual retirement fund” by removing the requirement to register with KRA under certain rules.
   • This could affect how retirement contributions are treated for income tax purposes.

Implications / What to Watch Out For

• Employees: You’re likely to benefit more immediately because your taxable PAYE should reflect all reliefs automatically, potentially increasing your net take-home pay.
• Payroll / HR Departments: Will need to update payroll systems to apply automatic reliefs (personal, insurance, mortgage, pension) correctly.
• Business / Self-Employed:
  • For deductibility, you need proper e-invoices (with PIN) for expenses; otherwise, KRA might disallow them when validating.
  • Be careful with withholding tax: non-remittance has stiffer penalties.
• Foreign / Digital Companies: If the SEP Tax regulation is finalized, non-resident digital firms could face more income tax liability in Kenya even if they don’t have a physical presence.