Decline in purchasing power attributed to rising taxes, multiple statutory deductions and the high cost of living.
Workers purchasing power has declined by up to 12 per cent over the past five years on the back of to rising taxes, multiple statutory deductions and the high cost of living, according to Kenya Bankers Association estimates.
Kenya Bankers Association (KBA), which is proposing a uniform 5 per cent reduction in pay-as-you-earn (PAYE) across all income tax bands, says the purchasing power of incomes for households has dropped by between 10.7 per cent and 12 per cent, leading to the broader slow down in economic growth.
The statutory deductions cited by KBA include PAYE, the 1.5 per cent Affordable Housing Levy, a 2.75 per cent contribution to the Social Health Insurance Fund (SHIF) and higher National Social Security Fund (NSSF) contributions, which now top Sh6,480 per month for higher earners.
“The banking industry believes that targeted measures to strengthen household purchasing power are essential for driving economic recovery, supporting businesses, creating jobs and improving long-term fiscal sustainability,” said KBA.
Kenya Bankers Association Tax Committee Chairman Wilfred Alambo in a panel discussion during the inaugural Tax Symposium in Nairobi on May 19, 2026.
The lobby’s proposal comes on the back of the economy growing at the slowest pace in five years at 4.6 per cent while real wages—earnings adjusted for inflation—grew by 2.0 per cent, marking the first time in six years for growth in workers’ earnings to surpass inflation.
The positive growth in real wages, however, masked the impact of increased statutory deductions-including SHIF, housing levy and NSSF that ate into workers pay, keeping it below the 2020 levels.
The Kenya National Bureau of Statistics uses gross income rather than take-home pay that hits workers' accounts to compute real wages.
The growth in real wages saw a regularly paid worker or wage employee, saw their monthly real earnings increase marginally to Sh56,566 last year from Sh55,450 in 2024.
The earnings are, however, still lower than in 2020, when they stood at Sh62,256. This means workers' earnings have suffered an erosion of Sh5,690 or 9.1 per cent compared to six years ago, supporting bankers’ assertion of reduced purchasing power.
Public employees continued to bear the brunt of the high cost of living, with their real wages falling further to Sh50,041 last year from Sh51,191.67 in 2024.
KBA says a 5 per cent uniform cut in PAYE for all salaried workers will boost their purchasing power, release Sh28.1 billion into the economy every year and generate close to Sh42 billion in immediate gross domestic product (GDP) output.
The lobby adds that the cut in PAYE will support approximately 36,000 jobs every year and expand the GDP by about Sh210 billion over the medium term, helping recover the initial revenue foregone through increased economic activity.
Fairness in tax system
Banks say the resulting increase in disposable income could also unlock up to Sh140 billion in formal lending capacity, enabling business expansion and investment and thereby supporting private sector growth and the broader economic activity.
According to KBA, the reduction will also restore fairness in the tax system, noting that the current top PAYE rate of 35 per cent is higher than the 30 per cent corporate tax rate, contrary to the National Tax Policy, which recommends that individuals should not be taxed more than companies.
The lobby says the Sh28.1 billion released through increased disposable income could support about 36,000 new jobs each year, driven by higher demand and expanded business activity.
The estimated new jobs is based on the assumption that every Sh1 billion invested in micro small and medium-sized enterprises supports about 1,300 jobs annually.
“The banking industry believes that targeted measures to strengthen household purchasing power are essential for driving economic recovery, supporting businesses, creating jobs and improving long-term fiscal sustainability,” said KBA.
KBA’s push comes at a time the net pay of thousands of workers has fallen below one-third of their basic salary following higher mandatory deductions for healthcare, retirement and housing, leaving employers in breach of the law on minimum take-home pay.
The Employment Act, 2007 prohibits employers from deducting more than two-thirds of the basic pay of an employee to safeguard their rightful gains from employment.
However, recent audit findings for State entities indicate that compliance has been increasingly difficult amid the layering of statutory deductions, alongside existing loan repayments and other obligations.
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