KEPSA Champions Finance Bill Overhaul to Revive Manufacturing

Introduction

The Kenya Private Sector Alliance (KEPSA) is spearheading a vigorous campaign for transformative reforms in the Finance Bill 2025, urging lawmakers to adopt measures that strengthen the country’s industrial base, streamline the tax code, and institutionalize deeper private-sector input into fiscal policymaking. During a retreat in Naivasha on April 25, 2025, KEPSA engaged the National Assembly Committees on Finance and National Planning; Budget and Appropriations; and Trade, Industry and Cooperatives, laying out a far-reaching proposal—one that seeks to reverse the long-term erosion of Kenya’s manufacturing competitiveness, alleviate the tax compliance burden on SMEs, and anchor revenue policy within a stable, transparent medium-term framework (allAfrica.com, kepsa.or.ke).

The Stakes: Manufacturing in Decline

Kenya’s manufacturing sector, once the cornerstone of value-added exports and urban job creation, has seen its share of GDP stagnate in recent years. In Q1 2024, real gross value added in manufacturing grew by only 1.3 percent, down from 1.7 percent the previous year, reflecting capacity underutilization and rising input costs (Kenya National Bureau of Statistics, Africa Check). By Q4 2024, manufacturing output stood at KES 228,855 million, a modest increase from KES 213,601 million in Q3—but still well below the double-digit growth needed to absorb Kenya’s young workforce and spur higher wages (Trading Economics).

KEPSA Chairperson Jaswinder Bedi warned that “Kenya’s manufacturing base is eroding,” noting that a lack of policy certainty, complex tariffs, and unpredictable tax changes have driven investors to more stable production hubs in Ethiopia and Vietnam. “We risk exporting de-industrialization unless we recalibrate our fiscal toolkit to support scaling factories rather than scaling back,” he told MPs (allAfrica.com).

The SME Conundrum: Tax Complexity and Compliance Costs

Small and medium enterprises account for 80 percent of formal employment in Kenya but contribute less than 30 percent of total tax revenues due to complex filing requirements, narrow thresholds, and fragmented incentive schemes (ikesra.kra.go.ke, ronalds.co.ke). KEPSA’s blueprint calls for:

1. Consolidated Filing Platforms: A single digital portal integrating income tax, VAT, and PAYE submissions.
   
2. Graduated Tax Rates: Lower marginal rates for businesses with turnover below KES 50 million, paired with simplified presumptive regimes for micro-enterprises.
   
3. Sunset Clauses: Time-bound, performance-linked incentives to replace open-ended exemptions that distort competition.
   

Anchoring Revenue Policy: The Case for an MTRS

To counter the boom-and-bust cycle of year-end tax squeezes and mid-year reliefs, KEPSA proposes enshrining a Medium-Term Revenue Strategy (MTRS) into law. The MTRS, already drafted by the National Treasury for FY 2024/25–2026/27, aims to align tax policy with national development goals, improve transparency, and provide a three-to-five-year horizon for businesses to plan investments (National Treasury of Kenya).

National Assembly Finance and National Planning Committee Chairman Kimani Kuria (Molo) endorsed the idea, urging MPs to institutionalize the MTRS through a Finance Act amendment. “A statutory MTRS will lock in fiscal discipline, curb ad-hoc tax hikes, and signal Kenya’s commitment to policy predictability,” he said, noting that such stability is key to attracting US $50 billion in foreign direct investment by 2028.

Fiscal Context: Deficit Targets and Debt Sustainability

Kenya’s fiscal deficit has been on a downward trajectory, from 5.3 percent of GDP in FY 2023/24 to a cap of 4.5 percent in FY 2025/26, as outlined in Cabinet decisions and parliamentary budget summaries (Reuters). However, servicing debt consumes 32 percent of government revenue, crowding out capital spending on roads, power, and schools (Financial Times).

KEPSA argues that better-targeted tax incentives—coupled with sunset provisions and regular impact reviews—can preserve revenue while supporting strategic industries. The alliance also backs digitization of revenue collection via the Kenya Revenue Authority’s iTax system to reduce leakages, enhance compliance, and speed up refunds to businesses.

Digitalization and Tax Administration Reform

Digitizing tax administration lies at the heart of KEPSA’s efficiency drive. Recommendations include:

• Real-time Data Sharing between KRA, the Central Bank of Kenya, and the National Treasury to monitor cash flows and flag discrepancies.
  
• Automated VAT Refunds based on electronic invoicing, cutting refund turnaround from 90 days to 30 days.
  
• E-Invoicing Mandate for large taxpayers by 2026, expanding to SMEs by 2028, to curb fraud and strengthen the VAT audit trail.
  

Infrastructure for Growth: Beyond ‘Public Demand’

While previous finance bills have prioritized social subsidies and electoral pledges, KEPSA insists that fiscal policy must also back competitive infrastructure—roads to industrial parks, reliable power for factories, and broadband connectivity for digital entrepreneurs. In Naivasha, KEPSA outlined a pipeline of five public-private partnership (PPP) projects, including:

1. Lamu–Naivasha Expressway completion for rapid goods movement.
   
2. Kiganjo Industrial Park electrification with a 150 MW solar mini-grid.
   
3. Nationwide 4G/5G rollout targeting 95 percent population coverage by 2027.
   

These projects, estimated at KES 600 billion, would be co-financed through development bonds, matching grants, and concessional loans—release mechanisms that require Finance Bill provisions for tax-exempt infrastructure bonds (kepsa.or.ke).

Strengthening Public-Private Dialogue

KEPSA stresses that the Naivasha retreat is not a one-off event but the launch of a structured dialogue process, with quarterly sessions between the Treasury and private-sector working groups. This “co-creation” model aims to pre-empt contentious measures—such as last year’s withdrawn tax hikes that sparked nationwide protests—and ensure that legislation is vetted by technical experts before tabling (allAfrica.com).

Chairman Kimani Kuria welcomed the shift from “post-facto submissions to ex-ante engagement,” calling it crucial for embedding trust in the parliamentary finance process.

International Benchmarks: Learning from Global Best Practices

To frame its proposals, KEPSA drew on international experiences:

• Chile’s Revenue Chile (Servicio de Impuestos Internos) uses a rolling five-year revenue strategy, coupled with independent impact assessments.
  
• Estonia’s e-Tax Board integrates tax, customs, and social security under one digital roof, enabling 99 percent of filings to occur automatically.
  
• Rwanda’s VAT e-Invoicing pilot reduced fraud by 30 percent and accelerated refunds by 60 percent in its first year.
  

By benchmarking against these systems, KEPSA argues that Kenya can leapfrog intermediate steps, adopting proven digital tools and legislative safeguards to modernize its tax regime swiftly (ronalds.co.ke).

Next Steps and Implementation Timeline

KEPSA has committed to presenting legislative text by July 2025, ahead of the Finance Bill’s second reading in September 2025. Key milestones include:

• June 2025: Cabinet consideration of MTRS amendment draft.
  
• July–August 2025: Parliamentary public hearings on digital-tax reforms and SME provisions.
  
• September 2025: Second reading of Finance Bill, incorporating KEPSA’s proposals.
  
• December 2025: Enactment of new tax measures, preceded by gazettement and Commissioner’s guidelines.
  

Conclusion

As KEPSA intensifies its advocacy for a growth-oriented, transparent, and predictable fiscal framework, the Kenyan government faces a choice: double down on stop-gap revenue measures that constrict the private sector, or embrace structural reforms that unlock industrial dynamism and broaden the tax base. By championing digitalization, SME relief, infrastructure bonds, and an MTRS enshrined in law, KEPSA offers a roadmap toward a more resilient, competitive economy. With parliamentary committees signaling openness to co-creation, Finance Bill 2025 could mark a turning point—one that either cements Kenya’s rise as an East African manufacturing hub or lets another year slip by under the weight of policy uncertainty.

Ready to take your career to the next level? Join our dynamic courses: ACCA, HESI A2, ATI TEAS 7 , HESI EXIT  , NCLEX – RN and NCLEX – PN, Financial Literacy!🌟 Dive into a world of opportunities and empower yourself for success. Explore more at Serrari Ed and start your exciting journey today! ✨

Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

26th May, 2025