Kenya’s Finance Bill 2025 proposes a sweeping exemption on capital gains tax (CGT) for investors trading shares on the Nairobi Securities Exchange (NSE). This aligns with the government’s long-standing Vision 2030, which positions Nairobi as a competitive financial hub in Africa, comparable to Dubai and Singapore. The exemption is expected to influence trading activity, especially after a 4.42% increase in NSE volumes in 2025 alone.
A Return to an Earlier Tax Waiver Strategy
The bill’s proponents highlight its potential to supercharge Kenya’s economy, which grew 5.2% in 2023 and is projected to reach 5.6% in 2025, driven by services and household consumption. The NSE, one of East Africa’s most sophisticated capital markets, saw its Nairobi 20 index rise 4.42% in 2025. Zero CGT could further boost liquidity, attracting private equity, venture capital, and multinationals, particularly in fintech and green finance.
Job creation is another draw. The NIFC’s Kenyan manager requirements aim to create high-skill roles, while its fintech focus could fuel innovation in the “Silicon Savannah.” As of March 2025, the International Finance Corporation’s $1.4 billion portfolio in Kenya spans manufacturing, agribusiness, and technology. The Multilateral Investment Guarantee Agency’s $608.2 million exposure across 10 Kenyan projects, including fintech and clean energy, ranks Kenya as Africa’s ninth-largest host.
This isn’t the first time Kenya has offered such an incentive. A similar CGT exemption introduced in 2015 helped boost liquidity at the NSE, and the government now appears keen to replicate that outcome. Supporters argue that a tax-free environment could attract foreign direct investment, especially from high-net-worth individuals and institutional investors looking for more favorable capital markets in East Africa.
Incentives Tied to Nairobi International Financial Centre (NIFC)
The proposal is part of a financial framework anchored by the Nairobi International Financial Centre (NIFC), launched in 2022. Certified firms that invest at least KSh 3 billion over three years qualify for reduced CGT, 5% instead of the standard 15%, if they hold those investments for five years. NIFC-certified companies also benefit from reduced corporate income tax rates: 15% for the first decade, 20% for the next ten years. For startups, the rate is 15% for three years, then 20% for the following four.
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To promote local participation, companies must meet specific employment thresholds: 70% of senior managers in holding companies and 60% in regional headquarters must be Kenyan. Carbon market operators are also included in the tax relief, paying 15% corporate tax for ten years.
A Tax Break for the Elite?
However, critics argue that the proposed CGT exemption mainly benefits the wealthy, who make up the majority of stock market participants. Capital gains primarily benefit high-net-worth individuals who dominate stock market investments. Zero CGT allows the wealthy to trade shares tax-free, while ordinary Kenyans face VAT on essentials like milk and flour, along with PAYE deductions. The Finance Bill 2025 raises tax-free allowances for private sector workers to KSh 10,000 on their daily per diem, but the benefit largely favors higher earners.
Additionally, public debt currently stands at 68% of GDP, above the World Bank and IMF’s recommended 55% threshold. While the fiscal deficit is projected to narrow to 5.0% of GDP in 2025, removing CGT could reduce revenue, potentially leading to higher consumption taxes or service cuts.
Transparency and Oversight Concerns
There are also concerns about financial integrity. The NIFC’s low-tax environment and opaque structure, modeled in part on Qatar’s financial framework, have drawn criticism from tax watchdogs. The Tax Justice Network Africa (TJNA) has previously warned that the NIFC could facilitate tax avoidance and reduce transparency, pushing Kenya toward becoming a financial secrecy jurisdiction. The centralization of NIFC oversight under the presidency adds to governance concerns.
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Critics also point to loopholes that could allow money laundering through the securities market. Without proper oversight, investors may engage in round-tripping or pump-and-dump schemes to inflate stock prices and convert illicit funds into legal gains. Kenya’s Capital Markets Authority (CMA) is piloting regulatory sandboxes, but analysts say the NSE lacks the strict surveillance mechanisms found in larger exchanges.
India offers a cautionary tale. Until 2018, long-term capital gains on shares were exempt, which opened the door to abuse through shell companies and share manipulation. These issues led India to reintroduce a 10% long-term capital gains tax and enhance trade monitoring. Kenya could avoid similar pitfalls by combining tax incentives with robust oversight and regulation.
Calls for a Middle Ground
Experts have proposed a middle ground, retaining a modest CGT rate, such as 5%, and introducing public reporting on the tax contributions of NIFC-certified firms. This would help maintain some tax revenue while also attracting investors. Additionally, enhanced surveillance at the CMA and public engagement in the legislative process would help build trust and ensure equitable outcomes.
As Parliament prepares to debate the Finance Bill 2025, the government faces a balancing act. While it seeks to strengthen capital markets and attract global investment, it must also guard against increasing inequality and public distrust. The rejection of the Finance Bill 2024 after public protests was a clear message, any economic reform perceived as favoring elites without tangible benefits for the wider population risks political backlash.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.