- Kenya’s Finance Bill 2025 proposes repealing key tax incentives for startups, including ESOP deferrals and investment deductions.
- The bill aims to broaden the tax base and increase revenue collection, impacting the startup ecosystem.
- Stakeholders express concern over the potential negative impact on innovation and investment.
Kenya’s Finance Bill 2025 is proposing the removal of the tax deferral on Employee Share Ownership Plans (ESOPs). Previously, employees could defer taxes on their stock options until they sold their shares.
Under the new proposal, taxation would occur at the point of vesting, potentially burdening employees with tax liabilities before realising any financial gain.
This marks a significant shift in the country’s approach to fostering its startup ecosystem. The proposed legislation aims to repeal several tax incentives that have been instrumental in attracting and retaining startups and investors.
Additionally, the bill proposes eliminating the 100% investment deduction for companies investing in hotel buildings, manufacturing sites, and equipment.
This incentive was particularly beneficial for companies investing at least KES 250 million outside Nairobi or Mombasa or making cumulative investments of at least KES 1 billion over three years.
The Finance Bill also seeks to repeal the preferential corporate tax rate of 15% for companies constructing at least 100 residential units annually. This move could impact the government’s affordable housing agenda by reducing incentives for large-scale residential construction.
These proposed changes come amid the government’s efforts to broaden the tax base and increase revenue collection. While the aim is to enhance fiscal sustainability, stakeholders express concern over the potential negative impact on Kenya’s startup ecosystem.
Kenya has long been recognised as a leading startup hub in Africa, attracting significant investment and fostering innovation.
The removal of these tax incentives could affect the country’s competitiveness, potentially driving startups and investors to more favourable jurisdictions.
As the Finance Bill 2025 progresses through the legislative process, the government faces the challenge of balancing revenue generation with maintaining a conducive environment for startups and investors.
The outcome will significantly influence the future trajectory of Kenya’s innovation landscape.
