Kenya’s accountants’ lobby has joined banks and tax experts in pressing for sweeping reforms to the country’s Pay As You Earn (PAYE) regime, piling fresh pressure on the Treasury after the Finance Bill 2026 failed to include expected relief measures for salaried employees facing shrinking take-home pay.
Speaking during stakeholder submissions before Parliament’s Finance and National Planning Committee, the Institute of Certified Public Accountants of Kenya (ICPAK), alongside the Kenya Bankers Association (KBA) and audit firm Deloitte, urged lawmakers to restructure PAYE bands, raise the tax-free income threshold to KSh30,000, and lower the highest tax rate.
The coordinated lobbying effort reflects one of the strongest institutional pushes yet against Kenya’s current payroll taxation framework. Banks are increasingly concerned about weakening household spending and credit performance, while accountants warn that the tax structure is becoming excessively punitive to formal employment and middle-income earners.
The pressure comes as workers contend with mounting statutory deductions, including contributions to the Social Health Insurance Fund (SHIF), the Affordable Housing Levy, and increased National Social Security Fund (NSSF) rates, all of which have significantly reduced disposable income.
ICPAK told lawmakers that Kenya’s PAYE structure escalates too aggressively, noting that the 30% tax bracket begins at monthly earnings slightly above KSh32,333, while individuals earning more than KSh500,000 face a 32.5% rate.
“The current tax bands are very narrow with the 30 per cent PAYE rate applied to individuals earning just over KSh32,333 per month. The progression is also very steep with individuals earning above KSh500,000 per month paying tax at the rate of 32.5%,” ICPAK told the committee.
The accountants’ body further argued that Kenya’s tax bands compare unfavourably with some regional economies such as Ghana, where equivalent tax rates apply at considerably higher income levels. According to ICPAK, the existing structure suppresses household savings, limits investment capacity, and weakens consumer purchasing power by placing a disproportionate burden on lower and middle-income earners.
Among the proposed reforms is a revised PAYE structure with tax bands of 10%, 15%, 20%, 25%, and 28%, coupled with enhanced personal relief and broader lower-income thresholds. Deloitte separately proposed capping the highest PAYE rate at 30% to align it with Kenya’s corporate tax regime and medium-term fiscal strategy.
The banking sector has framed the matter increasingly as a macroeconomic issue. The Kenya Bankers Association estimates that expanding lower tax bands and reducing PAYE rates could inject over KSh28 billion annually into household incomes, potentially stimulating consumer spending, private sector demand, credit uptake, and employment growth.
Banks have also linked declining disposable incomes to growing pressure on borrowers’ repayment capacity, warning that squeezed salaries are beginning to affect loan quality across the sector.
Lawmakers on the Finance and National Planning Committee appeared open to the proposals, with several MPs indicating they may introduce amendments independently despite the absence of PAYE reforms in the Finance Bill presented by the Treasury.
Committee members increasingly framed the debate as both an economic and fairness issue, arguing that salaried workers have borne an outsized tax burden even as the government struggles to stabilise public finances.
Committee chairperson Kuria Kimani noted that Treasury modelling showed increasing the minimum taxable income threshold from KSh24,000 to KSh30,000 could create a KSh35 billion revenue gap, highlighting the difficult balancing act between easing pressure on households and sustaining government revenues.
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Treasury officials had earlier floated plans to exempt workers earning below KSh30,000 from PAYE and reduce tax rates for those earning up to KSh50,000 through a separate Tax Laws (Amendment) Bill before later shelving the proposals. Authorities subsequently linked the delay partly to falling fuel VAT revenues following reductions in petroleum taxes during the Iran conflict.
The debate unfolds against the backdrop of Kenya’s mounting debt burden, which has now surpassed KSh13 trillion, with debt servicing consuming close to two-thirds of ordinary government revenue. That reality has left the state increasingly dependent on predictable tax streams such as PAYE even as resistance to payroll deductions intensifies among workers and employers alike.
