Feature: World Bank Pushes for Lower PAYE for Low income Earners in Kenya.

The World Bank has proposed significant changes to Kenya’s Pay As You Earn (PAYE) system, which could see low- and middle-income earners pay less in income taxes while high-income earners face higher rates. If adopted by the government, these reforms would adjust tax bands, making the system more progressive—ensuring that those who earn more contribute more, while easing the burden on lower-income workers.

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Lower Taxes for Low- and Middle-Income Earners

Currently, Kenyans earning up to Ksh24,000 per month (Ksh288,000 per year) pay a 10% income tax, which remains unchanged in the proposal. However, the next tax band—covering those earning between Ksh24,000 and Ksh32,333 per month (Ksh288,000–Ksh388,000 per year), would see their tax rate slashed from 25% to 15%, providing much-needed relief.

For middle-income earners, the current 30% tax rate for those earning between Ksh32,333 and Ksh500,000 per month (Ksh388,000–Ksh6 million per year) would be split into two tiers:

• 25% for those earning Ksh32,333–Ksh166,663 per month (Ksh388,000–Ksh2 million per year).

• 32.5%for those earning Ksh166,663–Ksh500,000 per month (Ksh2 million–Ksh6 million per year).

This means some middle-class workers could see a slight reduction in their PAYE deductions, while higher earners in this bracket would pay marginally more.

Higher Taxes for Top Earners

The biggest increases would affect Kenya’s top earners:

• Those earning Ksh500,000–Ksh800,000 per month (Ksh6 million–Ksh9.6 million per year) would see their tax rate rise from 32.5% to 35%.
• The super-rich earning above Ksh800,000 per month (Ksh9.6 million per year) would face a 38% tax rate, up from the current 35%.

This aligns with the World Bank’s goal of making taxation more progressive—ensuring that wealthier individuals contribute a larger share of their income.

Scrapping the Housing Levy for Low Earners

In addition to PAYE adjustments, the World Bank has recommended removing the housing levy for low-income workers. Currently:

• A worker earning Ksh24,000 per month pays Ksh360 in housing levy. –
• Those earning Ksh24,000–Ksh32,333 pay Ksh480.

Exempting these earners would further reduce their tax burden, leaving them with more disposable income.

The World Bank insists these changes would keep total tax revenue stable, while redistributing the burden more fairly. Since low-income earners contribute a small fraction of total taxes, shifting more responsibility to high earners would have minimal impact on government revenue but create a fairer system.

“Shifting the tax burden from low-income earners to the top income deciles is expected to have a minimal impact on revenues, yet would make the tax system more progressive,” the World Bank noted.

What This Means for Kenyan Workers: If implemented, these reforms could:

✅ Increase take-home pay for low and middle-income workers.

✅ Reduce inequality by taxing high earners more.

✅ Simplify the tax structure by adjusting outdated brackets.

However, the proposal still needs government approval. If adopted, it could mark a significant shift in Kenya’s tax policy—offering relief to millions while ensuring the wealthy pay their fair share.

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Final Thoughts

Tax reforms are always contentious, but a more progressive system could help alleviate financial pressure on struggling households while maintaining government revenue. For now, Kenyans will be watching closely to see if these changes become reality.

Source: World Bank Report (Beyond the budget)

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