Win for Employees as Finance Bill 2025 Proposes Change for Per Diems

Employees could soon benefit from an increased tax-free rate on per diems following the tabling of the Finance Bill 2025 in Parliament.

As detailed in the Bill tabled in Parliament on Thursday, April 30, the tax-free limit is proposed to be increased from Ksh2,000 to Ksh10,000.

Per diems are allowances paid by employers to their employees when they are sent to the field.

Currently, employees don't get taxed for the first Ksh2,000 paid per day. For instance, if an employee is given Ksh5,000 for per diem, the taxable amount will be Ksh3,000.

"Where such amount is received by an employee as payment of subsistence, travelling, entertainment or other allowance, in respect of a period spent outside his usual place of work while on official duties, the first two thousand shillings per day expended by him for the duration of that period shall be deemed to be reimbursement of the amount so expended and shall be excluded in the calculation of his gains or profits," reads part of the Income Tax Act.

"Section 5 of the Income Tax Act is amended in item (iii) of the proviso to subsection (2)(a), by deleting the words two thousand shillings (Ksh2,000) and substituting therefor the words ten thousand shillings (Ksh10,000)," proposed the bill.

Additionally, employed Kenyans with pension schemes will not be taxed for gratuity payments.

Gratuity is a one-time payment made to an employee upon leaving their job, usually upon retirement.

"Retirees will benefit significantly as all gratuity payments, whether in public or private pension schemes, will now be fully tax-exempt, ensuring dignity for Kenya’s senior citizens after retirement," State House explained the move.