Bankers Propose Popular Tax Measure that Will Increase Salaries

The banking industry has called on the government to consider a uniform 5% reduction in Pay As You Earn (PAYE) across all income bands to stimulate economic growth, strengthen household purchasing power, and enhance long-term fiscal sustainability.

In a statement issued the Kenya Bankers Association (KBA) says such a policy shift “would immediately increase disposable income, boost consumption, and unlock broader economic activity across key sectors.” “Based on industry estimates, a 5% PAYE reduction would release approximately Ksh 28.1 billion annually into the economy and generate close to Ksh 42 billion in immediate GDP output, driven by increased household spending and demand,” KBA said.

The banking industry further noted that every Ksh 1 billion invested in MSMEs supports approximately 1,300 jobs annually. “On this basis, the additional disposable income could support around 36,000 new jobs each year, driven by increased demand and expanded business operations,” the statement added.

According to KBA, higher take-home pay would strengthen household consumption, savings, and investment, while also increasing credit uptake. This would stimulate demand for goods and services and benefit manufacturers, traders, and MSMEs through improved sales volumes and stronger supply chains.

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The industry also projected that increased disposable income could unlock up to Ksh 140 billion in formal lending capacity, enabling business expansion and deeper private sector investment. Over the medium term, the proposal is expected to strengthen fiscal performance. “Projections indicate that a 5% PAYE reduction could expand GDP by approximately KES 210 billion and generate an additional KES 27– 31 billion in tax revenues, effectively offsetting the initial revenue foregone within one financial year through increased economic activity,” KBA stated.

The industry further noted that real incomes in Kenya have declined by an estimated 10.7%–12% over the past five years, driven by rising taxes and living costs. Workers also continue to face multiple statutory deductions, including PAYE, the Affordable Housing Levy, SHIF, and enhanced NSSF contributions.

KBA also observed that the current top PAYE rate of 35% exceeds the 30% corporate tax rate, a misalignment with the 2023 National Tax Policy, which provides that individuals should not be taxed more than companies, noting that a 5% reduction would help address this imbalance and restore equity in the tax system.

The banking industry emphasized that strengthening household purchasing power is critical to driving economic recovery, supporting enterprise growth, creating jobs, and improving long-term fiscal stability.

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