By Eric Kihungu- Managing Partner
In a move that signals a sharp turn toward fiscal responsibility and long-term economic resilience, Kenya’s Cabinet, chaired by President William Ruto, has unveiled a sweeping set of policy and legislative actions aimed at reducing debt, streamlining government spending, and enhancing service delivery. The decisions, taken during a Cabinet meeting held at State House, Nairobi on April 29, 2025, reflect a commitment to reform in the face of ongoing economic pressures.
Here are the most important takeaways from the session:
1. Budget Cuts to Rein in the Deficit
Kenya’s initial KSh4.3 trillion budget will undergo major revisions as part of a fiscal consolidation strategy. The government aims to reduce the fiscal deficit to 4.5% of GDP in 2025/26, with a long-term goal of bringing it down to 2.7%. Ministries and departments have been instructed to work with the National Treasury to implement targeted spending cuts.
2. Finance Bill 2025: Closing Loopholes, Not Raising Taxes
Rather than imposing new taxes, the Finance Bill 2025 focuses on boosting tax collection efficiency. Key features include:
Streamlined tax refund systems
Legal reforms to reduce tax disputes
Amendments to the Income Tax, VAT, Excise Duty, and Tax Procedures Acts
Full cost deductions on tools and equipment for small businesses in the year of purchase
These measures aim to strengthen revenue without stifling productivity or burdening taxpayers.
3. Tax Reliefs for Retirees and Employees
In a bid to promote equity and reduce bureaucratic hurdles:
All gratuity payments—whether from public or private pensions—will now be tax-exempt.
Employers are required to automatically apply PAYE tax reliefs when calculating salaries, eliminating the need for employees to chase refunds from the Kenya Revenue Authority.
4. Emergency Funds Now Mandatory for Counties
Following challenges experienced during the 2023 El Niño rains, a new amendment to the Public Finance Management Act will require all county governments to establish Emergency Funds. This move is designed to enhance preparedness and protect critical infrastructure and livelihoods during disasters.
5. Judges’ Retirement Benefits Overhaul
To bolster judicial independence and attract top legal talent, the Cabinet approved a new retirement benefits framework for superior court judges. Highlights include:
A Defined Benefit scheme for current judges
A Defined Contribution plan for new appointees
Monthly pensions, medical coverage, gratuities, and diplomatic perks
6. Expanding Healthcare Access
As part of the Universal Health Coverage (UHC) agenda, the government will partner with the African Development Bank to construct two new Level VI teaching and referral hospitals in Bungoma and Kericho counties. These facilities aim to improve healthcare delivery in underserved regions.
7. Liberalising Capital Markets
To attract investment and deepen financial markets, the Cabinet approved amendments to the Capital Markets Act removing shareholder limits in regulated institutions. Strong governance mechanisms will remain in place, with the Cabinet Secretary retaining the power to impose limits where necessary.
8. Modern Regulation for Pest Control Products
A new Pest Control Products Bill has been endorsed to establish an independent regulatory authority. This legislation aligns with international standards and prioritises food safety, environmental protection, and agricultural competitiveness.
9. Kenya Expands Diplomatic Footprint to Haiti
In a move that affirms Kenya’s role in global peacekeeping, the Cabinet approved the establishment of a Consulate General in Port-au-Prince, Haiti. The mission will support Kenya’s leadership in stabilising the Caribbean nation and broaden its diplomatic presence in the region.
