Kenya’s banking sector is urging the government to slash pay-as-you-earn (PAYE) tax rates by five percentage points across every income band, saying the move would ease pressure on household budgets, stimulate growth and ultimately shore up tax collections.
In proposals submitted to the Treasury, the Kenya Bankers Association said the across-the-board reduction should come with a cap on the highest PAYE rate at 30 percent. That threshold, it argued, aligns with the National Tax Policy adopted in 2023, which holds that personal income tax should not exceed the corporate rate.
The proposal landed a day after John Mbadi announced plans to zero-rate PAYE for workers earning up to Sh30,000 a month, framing it as immediate relief for households facing rising living costs. Bankers countered that restricting tax relief to lower earners falls short, given the widening tax burden borne by workers and employers alike.
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The industry group also flagged the phased increase in National Social Security Fund contributions, which will see both employers and employees contributing up to six percent of pay by February 2026. According to the bankers, the combined impact of higher statutory deductions threatens to erode disposable incomes, particularly for firms and workers without occupational pension schemes.
Without PAYE relief that applies to all employees, the association warned, pressure on both wages and payroll costs will continue to mount. Under the current structure, monthly earnings of up to Sh10,000 attract a 10 percent tax, the next Sh8,333 is taxed at 25 percent, income up to Sh467,000 faces a 30 percent rate, earnings up to Sh767,000 are taxed at 32.5 percent, and any amount above that is subject to a 35 percent levy.
