The Kenya Revenue Authority (KRA) has announced significant tax exemptions on gratuity payments for certain employees, effective July 1, 2025. This change, introduced through the Finance Act, 2025, aims to reduce the tax burden on retirees and those leaving long-term employment.

• Gratuity payments earned after July 1, 2025, are now exempt from income tax for both employees and employers, covering both public and private sectors.
• KRA clarified that gratuity earned before July 1, 2025, remains taxable, even if paid after this date, requiring employers to allocate it to past years for tax calculation.
• An additional exemption for gratuity payments from public pension schemes is effective December 27, 2024, under the Tax Laws (Amendment) Act, 2024.