Kenya’s top bankers are pushing the government to rethink its income tax strategy, warning that small tax breaks will not fix the pressure workers are facing from shrinking take-home pay.
The Kenya Bankers Association (KBA) says the National Treasury’s plan to exempt salaries of up to Ksh.30,000 from PAYE is a positive step, but insists it barely scratches the surface. The association argues that the proposal benefits too few workers to deliver real relief or spark economic growth.
According to the bankers, raising the tax-free threshold will only increase the share of PAYE-exempt workers from about four per cent to roughly six per cent of formal sector employees, around 204,000 people, a figure they say is too small to make a meaningful difference.
KBA on PAYE rates
Instead, KBA is urging the government to cut PAYE rates by at least five per cent across all income bands and align the top personal income tax rate with the corporate tax rate of 30 per cent.
The bankers say workers are being squeezed not just by PAYE, but also by rising statutory deductions such as pension, housing and health contributions, which continue to reduce net pay even when tax thresholds are adjusted.
“Tax on individual income should not be more than the tax we levy on corporations. For corporates, we have capped it at 30 per cent, yet for income earners we have gone as high as 35 per cent,” Kenya Bankers Association CEO Raimond Molenje, said. “That’s why we are saying let’s live within the law and within policies we have agreed on consultatively.”
Molenje said limiting tax relief to low-income earners could also distort pay structures in the labour market. “Exempting up to Ksh.30,000 earners is a good signal, although a weak signal. We need to be bold as a country and reduce PAYE across all bands,” he said.
“When it comes to taxation relief, let it apply to all categories of workers. It may look good when applied to low earners, but if you haven’t considered the employment perspective, companies may face challenges. Even as a company, you cannot increase salaries for high-income earners and ignore the rest,” he added.
The bankers believe broader PAYE cuts would put more money in the hands of workers, boost consumer spending and support economic activity, instead of relying on narrow exemptions that leave most salaried Kenyans paying the same or more.
The debate now shifts to Parliament, where the Treasury’s proposals and the bankers’ demands are expected to feature prominently in discussions ahead of the next Finance Bill
Leave a comment