Experts in the financial sector want the government to reduce the Pay As You Earn (PAYE) rate by at least 5 percent.
Experts in the financial sector are pushing for amendments to the Finance Bill 2026 to reduce the Pay As You Earn (PAYE) rate by at least 5 percent, saying this will increase revenue and expand the economy.
The Kenya Bankers Association (KBA) and the Institute of Certified Public Accountants (ICPA) made the proposal to the National Assembly Committee on Finance and National Planning, which is considering the Bill.
The organisations also pushed back against the imposition of excise duty on phones at the point of activation and the planned introduction of Value Added Tax (VAT) on digital transactions, saying that it is an unnecessary burden to an already overtaxed populace.
Their push is anchored in the fact that employees face the burden of additional taxes and levies on gross income, such as the Social Health Insurance Fund (SHIF), the affordable housing levy, and the enhanced National Social Security Fund (NSSF), which have led to a “decline in real wages”.
Although the Bill is not intended to alter the PAYE rate, the experts in the financial sector want a new proposal introduced in the Bill.
“Kenya’s PAYE tax bands are narrow and steep, with high marginal rates applying at much lower incomes than in peer countries,” says KBA Chief Executive Officer Raymond Molenje in a memorandum to the committee chaired by Molo MP Kuria Kimani.
“A 5 percent PAYE cut expands the economy, creates jobs and increases the country’s tax revenue,” he says.
Experts in the financial sector want the government to reduce the Pay As You Earn (PAYE) rate by at least 5 percent.
Currently, SHIF attracts a monthly tax of 2.75 percent of gross pay and affordable housing levy is 1.5 percent of monthly gross pay, with employers matching the same. NSSF contributions of Sh6,480 were effected in February 2026.
A simulation undertaken by KBA shows that a uniform 5 percent reduction in PAYE across all the income bands will release Sh28.1 billion into the economy annually, generating Sh42 billion “in immediate GDP output”, creating 36,000 new jobs annually, and unlocking Sh140 billion in formal lending capacity.
The bankers’ association further notes that if the PAYE rate were to be reduced by 5 percent, the resultant effect would be the generation of between Sh27.1 billion and Sh31.5 billion in additional revenues, the recovered revenue loss caused by the reduction in the first year.
The current monthly individual PAYE rates are such that on the first Sh24,000 earned a month, 10 percent is charged, escalating to 25 percent on the next Sh8,333. On the next Sh467,667, 30 percent is charged, with 32.5 percent on the next Sh300,000 and 35 percent on all income over Sh800,000.
If the KBA proposal goes through, the new tax bands shall be such that 10 percent shall be charged on the first 30,000; 20 percent on the next Sh8,333; 25 percent on the next Sh461,667; 27.5 percent on the next 300,000; and 30 percent on amounts over Sh800,000.
FCPA Robert Waruiru, the convenor of the Public Finance Taxation Committee at ICPAK, notes that a reduction in the marginal PAYE rate and the expansion of the PAYE bands to enhance progressivity would be in line with the government’s policy objectives under the Medium-Term Revenue Strategy (MTRS).
“With higher deductions such as NSSF, affordable housing levy and SHIF contributions over the last two years, a more progressive tax rate would help increase disposable income among individuals,” says Mr Waruiru.
“This would in turn enhance their purchasing power, savings and investment capacity; and consequently, spur economic growth.”
ICPAK argues that the proposed amendment would also align “our” PAYE regime compared to Kenya’s peers in Africa – Ghana and South Africa. For instance, Ghana has 0 percent, 5 percent, 10 percent, 17.5 percent, 25 percent, 30 percent, and 35 percent, “with much wider tax bands, noting that the 30 percent rate applies to a monthly income of above Sh255,000 in Ghana, as opposed to Sh32,333 in Kenya.”
Clause 34 of the Bill seeks to amend the Excise Duty Act to shift the excise duty liability point for imported or locally manufactured telephones from importation or manufacture to device activation.
However, ICPAK and KBA want it retained at importation or local manufacture in accordance with the existing Excise Duty Act framework.
“While activation-based verification may support compliance monitoring and anti-illicit trade enforcement objectives, it departs from traditional excise administration principles under which liability crystallises at identifiable importation or manufacturing points,” says ICPAK
Follow our WhatsApp channel for breaking news updates and more stories like this.
