Kenya’s fiscal policy in 2025 is being reshaped by the winds of global tax reforms – likely to influence the country’s economic strategies.

The last week of 2024 saw Kenya adopt two significant tax policies that transformed the country’s international tax landscape at the dawn of 2025.

Effective December 27, 2024, the Tax Laws (Amendment) Act, 2024 introduced Minimum Top-up Tax (MTT) and Significant Economic Presence Tax (SEPT).

The Finance Act 2025 (gazetted on June 27, 2025) further reinforced MTT by providing that the tax is due by the end of the fourth month following the end of the year of income.

It also increased the scope of SEPT coverage and removed SEPT’s threshold of Sh5 million only six months after its introduction.

MTT mandates multinational enterprises (MNEs) to pay at least15 per cent effective tax rate (ETR) on their profits in Kenya.

It is calculated by comparing the tax paid—based on adjusted taxable income—to the 15 per cent minimum threshold. If the

ETR falls below 15 per cent, the company must pay additional tax to bridge the gap.

This may sound confusing because the statutory corporate tax rate in Kenya is 30 per cent of taxable profit. However, MTT will still apply as follows:

Suppose an MNE’s profit in Kenya is Sh100 million. Normally, with a 30 per cent rate it would pay Sh30 million in taxes. But the company uses tax deductions, allowances, credits, incentives or carried forward losses to lower its taxable income to say Sh40 million, which leads to Sh12 million in taxes.

Despite a 30 per cent statutory rate, the company pays just 12 per cent after deductions or incentives. Under the MTT, it must “top up” the tax to 15 per cent.

Introduction of MTT directly aligns with the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

This is a global initiative launched in 2013 to tackle tax avoidance by MNEs and ensure that profits are taxed in the country where revenue generating activities occur, limiting shifting of profit to low tax jurisdictions.

Over 140 countries, including Kenya, participate in the Inclusive Framework, committing to fair and competitive tax rules. The framework is built on two pillars to address the tax challenges posed by the digital economy.

Pillar One reallocates taxing rights so that MNEs – especially tech giants – pay taxes in countries where their customers are based (market countries), even without physical presence. It targets profitable MNEs with over EUR 20 billion in global revenue.

Pillar Two, which directly informs Kenya’s MTT, targets MNEs earning over EUR 750 million annually.

It ensures they pay at least 15 per cent tax in each operating country, addressing profit shifting through a “top-up” on low-taxed income.

Kenya is estimated to have fewer than 100 companies subject to MTT, reflecting its modest share of the roughly 8,000 global MNEs covered under Pillar Two.

Nonetheless, the tax will ensure MNEs contribute fairly to national revenue – crucial amid growing public debt and pressing employment challenges.

That said, the framework’s complexity demands robust administrative capacity, which Kenya is still building.

For MNEs, they must navigate increased compliance costs and rethink tax strategies that rely on low-tax jurisdictions or incentives.

On the other hand, SEPT replaced Kenya’s previous Digital Service Tax in a bid to capture revenue from the rapidly growing digital economy.

It targets non-resident digital firms that generate income from Kenyan users, without physical presence such as online platforms, search engines and digital service providers.

A non-resident firm is deemed to have “significant economic presence” in Kenya if its services are consumed by Kenyan users.

SEPT is effectively levied at a rate of 3 per cent on gross turnover — calculate as 30 per cent corporate tax on a presumed 10 per cent profit margin.

Kenya joins other African countries like Nigeria, Uganda, Morocco and Cote d’Ivoire, who have also adopted SEPT, following global practices like those in the European Union.

These two new taxes mark a major recalibration of Kenya’s fiscal policy amid globalisation and digital transformation.

They signal a move toward more advanced, globally aligned tax system – where Kenya seeks to tax income generated from within its borders, regardless of the company’s location.

Kenya’s ability to balance the evolving global tax framework to the local unique context and foster investor-friendly environment will shape the country’s economic future.