Kenya’s banking sector has asked the government to overhaul the Pay As You Earn tax system, saying current tax levels have squeezed workers’ incomes and weakened spending power.
Through the Kenya Bankers Association, the industry wants the tax-free income level raised to Sh30,000 and the highest PAYE rate reduced to 30 per cent.
The proposal comes as the National Treasury collects public views to guide the Finance Bill 2026. Bankers say adjusting the PAYE structure would allow workers to keep more of their pay, support business activity, and help the government raise revenue through increased spending across the economy.
“In a ten-point proposal that comes at a time when the National Treasury has invited comments on tax policies to inform the Finance Bill 2026, the industry, through umbrella body, the Kenya Bankers Association (KBA), has argued that lowering the tax bands will widen the tax base, increase revenue to the government while encouraging savings and investment in businesses,” KBA said in a statement issued on Thursday.
Under the suggested structure, earnings below Sh30,000 would not attract PAYE. Income between Sh30,001 and Sh50,000 would be taxed at 15 per cent, while those earning between Sh50,001 and Sh100,000 would pay 20 per cent. A rate of 25 per cent would apply to income from Sh100,001 to Sh400,000, with any amount above Sh400,000 taxed at 30 per cent.
The association says the revised bands would help workers meet daily needs and increase demand for goods and services. According to the bankers, this would support micro, small and medium-sized enterprises, which rely heavily on household spending.
KBA has also proposed changes to tax payment timelines, calling for withholding tax and VAT to be remitted by the fifth day of the following month. It says the move would ease pressure on businesses by improving cash flow and reducing the cost of meeting tax obligations.
The bankers argue that simpler timelines would also encourage more firms to operate within the formal economy and use digital payment systems, leading to better compliance over time.
KBA chief executive Raimond Molenje said rising deductions have reduced the value of workers’ pay. “The purchasing power of salaried Kenyans has fallen significantly in recent years. Adjusting PAYE bands is a practical step to restore household income, stimulate spending, and support businesses,” he said.
He added that higher take-home pay would allow workers to spend more, save and invest, which would strengthen the economy, improve loan repayment and support public revenue collection.
Currently, PAYE rates under the Finance Act 2023 stand at 10 per cent on the first Sh24,000, followed by 25 per cent on the next Sh8,333 and 30 per cent on the next Sh467,667. A rate of 32.5 per cent applies to the next Sh300,000, while income above Sh800,000 is taxed at 35 per cent.
In addition to PAYE, workers face other mandatory deductions, including the 1.5 per cent Affordable Housing Levy, the 2.75 per cent NHIF contribution and rising NSSF payments. According to the Parliamentary Budget Office Report 2025, these combined deductions have led to a 10.7 per cent drop in real wages.
