Treasury is proposing to remove low-income salaried Kenyans from the income tax bracket in a tax Amendment Bill to be brought before the House, that will see those earnings less than KSh 30,000 per month exempted from Pay as You Earn(PAYE).
These tax measures, if passed into law by parliament, will see a salaried worker earning KSh 30,000 per month in Nairobi and currently facing numerous deductions, significantly increase the take home pay. An exemption from the PAYE bracket will add something to their net income, translating into higher spending on food, rent, transport, school fees or other essentials.
Treasury is also planning to lower the PAYE tax band from 30% to 25% for those earning between KSh 30,000 and 50,000 per month in the Tax Bill that is due before the Finance Bill 2026.
Tax experts say the tax relief measures will have the impact of increasing household disposable income and can spur higher aggregate demand and consumption. This can boost short-term economic activity, which often supports business revenues and investment.
“The impact of this relief will also depend on the size of the stimulus relative to that of the economy,” said Dedan Maina, an investment consultant at Ketu Capital.
Analysts agree that while an income of KSh 30,000 is modest relative to total consumption-driven GDP, this amount is significant at the household level.
Others view these measures as a populist move given that Kenya faces a gruelling elections next year. Pessimists contend that the net effect may be minimal if there is a continued spike in the cost of living or any increases in other statutory deductions.
Kenya Bankers Association(KBA)-a powerful lobby group for the banking industry- in its submissions to Treasury after the exchequer invited comments on tax policies to inform the Finance Bill 2026, said PAYE reforms is a growth driver for small and medium-sized enterprises.
It said higher household spending will improve cash flow to medium and small-sized enterprises, reducing the risk of loan repayment failures and enabling banks to extend more credit to individuals and businesses.
Treasury figures show that 3.7 million Kenyans earn monthly salaries
Treasury figures shows that about 3.7 million Kenyans are salaried and about 1.5 million Kenyans earn less than KSh 30,000 per month. It plans to reduce the tax rate for those earning between KSh 30,000 and KSh 50,000 by 5% to 25%.
Treasury said it is providing the tax relief to cushion low-income salaried Kenyans from the pains of high cost of living and high taxation.
Tax relief for those earning less than KSh 30,000 is expected to stimulate demand, particularly among farmers and small traders and support economic growth.
The Kenya Bankers Association(KBA) has suggested that lowering PAYE bands for low and middle-income salaried Kenyans will restore household incomes, stimulate spending and support businesses.
The KSh 30,000 tax-free threshold will leave more money for essential expenses and savings and boost consumer spending.
Treasury said the Government intends to compensate for the tax revenue shortfalls through privatization and improved tax compliance.
KBA had argued that lowering the tax bands will widen the tax base, increase revenue to the Government while encouraging savings and investment in businesses.
KBA had proposed that income below KSh 30,000 be exempt from PAYE, KSh 30,001.00 to KSh 50,000 be taxed at 15%, income between KSh 50,001.00 to KSh 100,000.00 at 20%, income between KSh 100,001.00 and-growth/,000 at 25% and any income above 40,000 at 30%.
“The purchasing power of salaried Kenyans has fallen significantly in recent years. Adjusting PAYE bands is a practical step to restore household income, stimulate spending and support businesses,” said KBA Chief Executive Raimond Molenje.
He added that when workers take home more pay, they spend more, save more and invest more, strengthening the economy, improving loan repayments and ultimately growing tax revenue.
At the moment, PAYE rates under the Finance Act 2023 are 10% for the first 24,000.00, 25% on the next KSh 8,333.00; 30% on the next 467,667.00, 32.5% on the next KSh 300,000.00 and 35% for income above KSh 800,000.00.
Kenyans have had to shoulder additional deductions, including the 1.5% Affordable Housing Levy, 2.75% Social Health Insurance Fund contributions and the new rates for National Social Security Fund(NSSF) contributions, which have significantly reduced real wages, which declined by 10.7% according to the Parliamentary Budget Office Report 2025.
“From the banking industry’s view, PAYE reform will not be a give-away. It will be a direct signal to Kenyans to be fully involved in the productive economy (agri-business and manufacturing) as investors and help grow the economy” said KBA in a 10-point Banking Industry Proposal to Treasury on PAYE Tax Reform
During a recent Budget and Privatization Public Engagement Forum at Kiambu National Polytechnic, CS Mbadi said, “Those salaried Kenyans, we have 3.5 million Kenyans earning a salary. They are carrying the burden of almost everybody. It is not fair. And this is what the Government has decided. We have sat down and agreed with the President. We want to give you something in your pocket so that you can spur demand in the economy.”
Mbadi linked the tax proposals to noticeable slowdown in economic activity, attributing it to reduced purchasing power among households.
Despite a ballooning public debt that consumes about 70% of GDP, Treasury insists that Kenya has not defaulted on its debt servicing obligations and avoided the debt restructuring measures seen in countries such as Ethiopia and Ghana.
Under the new tax proposals, high-income earners will also get some relief with the top PAYE rate capped at 30% from the current 32.5%.
The Government projects to raise KSh 2.7 trillion through taxes in the KSh 4.2 Trillion 2025/26 Budget, with the remainder funded through local borrowings of KSh 592 billion and foreign loans at KSh 284 Billion in addition to grants and levies.
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