Parliament rejects major push by financial experts to lower PAYE rates

Members of Parliament have rejected proposals to lower PAYE rates and exempt workers earning below Sh30,000 a month from income tax, despite calls from accountants, bankers and tax experts.

Bodies such as ICPAK and the Kenya Bankers Association (KBA) argued that Kenya’s tax bands are too steep, especially at a time when workers are also shouldering deductions for SHIF, the Housing Levy and enhanced NSSF contributions, all of which have squeezed take home pay.

The proposals sought to raise the tax-free threshold from Sh24,000 to Sh30,000, reduce the top PAYE rate from 35% to 30%, and increase personal relief from Sh2,400 to Sh3,000. The exemption for low earners was also in line with President William Ruto’s earlier pledge to shield workers at the bottom from income tax, but MPs opted not to adopt the proposal.

According to a KBA simulation, a uniform 5% reduction in PAYE would release Sh28.1 billion into the economy annually, generate Sh42 billion in immediate economic output, create 36,000 jobs and unlock Sh140 billion in formal lending capacity. The association further argued that stronger economic activity would largely offset the lost tax revenue, generating between Sh27.1 billion and Sh31.5 billion in additional revenues within the first year.
But MPs opted to defer the matter, recommending that the National Treasury continue exploring ways to make the tax system more progressive without significantly reducing revenues.

For ordinary employed Kenyans, the decision means little immediate relief. A significant portion of workers salaries will continue to go toward taxes and mandatory deductions, leaving less money available for household spending and savings.