MPs Push PAYE Tax Relief as Workers Reel From Rising Deductions

 Pressure is mounting on the government to overhaul Kenya’s Pay As You Earn (PAYE) tax structure after key stakeholders urged Parliament to widen tax bands and lower rates to ease the burden on salaried workers grappling with shrinking take-home pay.

Appearing before the National Assembly Departmental Committee on Finance and National Planning during public hearings on the Finance Bill, 2026, the Institute of Certified Public Accountants of Kenya (ICPAK) said the current PAYE system disproportionately punishes low and middle-income earners, despite being designed as a progressive tax regime.

ICPAK argued that the pain has intensified following the introduction of additional statutory deductions over the last two years, including enhanced NSSF contributions, the Affordable Housing Levy and Social Health Insurance Fund (SHIF) deductions.

The accountants maintained that the existing tax bands are too narrow, forcing many workers into higher tax brackets much earlier than in comparable economies.

Under the current structure, workers earning slightly above Kshs. 32,333 per month are already subjected to the 30 per cent PAYE rate, while those earning above Kshs. 500,000 pay up to 32.5 per cent tax.

ICPAK warned that the steep progression risks eroding workers’ purchasing power, savings and investment capacity, ultimately slowing economic growth.

The institute cited Ghana as an example of a more balanced tax structure, noting that the West African country only imposes a 30 per cent tax rate on monthly incomes exceeding approximately Kshs. 255,000.

To address the disparities, ICPAK proposed reducing the top PAYE rate from 35 per cent to 28 per cent and introducing a more gradual tax framework comprising bands of 10, 15, 20, 25 and 28 per cent.

The accountants also proposed increasing the minimum taxable income threshold from Kshs. 24,000 to Kshs. 30,000 and raising personal relief from Kshs. 2,400 to Kshs. 3,000 per month to cushion low-income earners.

The Kenya Bankers Association (KBA) echoed the concerns, warning that mounting statutory deductions are steadily weakening the spending power of salaried Kenyans.

In its memorandum to the committee, KBA estimated that workers earning a gross monthly salary of Kshs. 100,000 have experienced a 7.74 per cent decline in net pay between January 2023 and early 2026 due to increased deductions.

The bankers proposed a uniform five percentage-point reduction across all PAYE bands, effectively lowering the maximum tax rate from 35 per cent to 30 per cent.

KBA also backed calls to expand lower tax bands and raise the tax-free threshold to Kshs. 30,000.

Members of Parliament signaled support for the proposals, despite the measures not being included in the Finance Bill, 2026.

Kesses MP Julius Rutto said the committee was considering amendments aimed at ensuring fairness in taxation by aligning tax obligations with individuals’ earning capacity.

Turkana South MP Dr. John Ariko emphasized the need for a progressive taxation system capable of redistributing wealth more equitably.

Committee Chairperson Kuria Kimani, however, cautioned that Treasury simulations indicate that increasing the minimum taxable income threshold to Kshs. 30,000 could reduce government revenue by approximately Kshs. 35 billion annually.

Even so, he said the committee would evaluate whether increased disposable income among workers could stimulate economic activity sufficiently to offset the projected revenue shortfall.

Audit firm Deloitte also supported reforms to PAYE bands, urging lawmakers to introduce additional tax brackets to improve progressivity while capping the top PAYE rate at 30 per cent.

The firm argued that giving workers more disposable income aligns with the government’s Bottom-Up Economic Transformation Agenda (BETA) and the Medium-Term Revenue Strategy for 2024/25 to 2026/27, which proposes reviewing PAYE structures to harmonize personal income tax with corporate tax rates.

The ongoing stakeholder engagements are expected to shape possible amendments to the Finance Bill before it is tabled for debate in the National Assembly.