As businesses adapt to evolving tax regulations, understanding the per diem allowances under the Finance Bill 2025 is critical. This post breaks down the key change, explains its practical implications, and offers a simple calculator framework you can incorporate into your internal systems or share with your employees.
Key Change: New Tax-Free Per Diem Threshold
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Substantial increase: The Finance Bill 2025 raises the tax-free per diem allowance from KES 2,000 per day to KES 10,000 per day for employees traveling on official duty.
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Effective date: This adjustment takes effect from 1 July 2025.
Why This Matters — The Corporate Perspective
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Aligns with economic reality: The previous KES 2,000 daily limit did not reflect rising costs of meals, lodging, and transport. The revision offers realism and fairness.
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Employee benefit: Staff traveling for work will retain more of their allowances—boosting morale and productivity.
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Employer efficiency: Payroll becomes simpler—minimal reconciliation for tax purposes and fewer refund requests to KRA.
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Government transparency: Streamlining per diem taxation fosters clearer tax administration and aligns policy with current needs.
Per Diem Calculator: A Practical Tool
| Input | Value |
|---|---|
| Total Per Diem Paid (KES/day) | e.g., X |
| Tax-Free Threshold (KES/day) | 10,000 (effective 1 July 2025) |
| Taxable Per Diem | max(0, X – 10,000) |
| Tax Payable on Excess | Taxable Per Diem × PAYE rate (based on prevailing PAYE band for the employee) |
Example:
If an employee receives KES 12,000 per day:
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Taxable portion = 12,000 – 10,000 = KES 2,000
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If PAYE rate is 30%, tax = KES 600
This calculator ensures quick transparency, helping both finance teams and employees assess actual after-tax allowances.
Best Practices for Corporate Adoption
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Update Payroll Systems
Implement the new KES 10,000 threshold from 1 July 2025 and automate the calculation in payroll software. -
Revise Employee Guidelines
Document per diem policies clearly, noting the tax treatment and effective date. -
Train Staff & Finance Teams
Explain the change and how to compute taxable per diem—transparency reduces inquiries and errors. -
Monitor Regulatory Updates
Keep tabs on KRA’s implementation guidelines or circulars to ensure compliance.
Summary
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What changed? Tax-free per diem raised to KES 10,000 per day.
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When? Effective 1 July 2025.
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Why it matters? Offers real relief for employees, simplifies payroll, and modernizes tax fairness.
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How to use: Apply the calculator to estimate after-tax per diem quickly and confidently.
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