Kenya’s banking sector has proposed a reduction in personal income tax, saying rising living costs and taxation have reduced the real earnings of workers by between 10.7% and 12% over the last five years. The sector argues that cutting PAYE would ease pressure on households, increase spending, and support economic growth.
The proposal has been made through the Kenya Bankers Association, which says weakening purchasing power among salaried workers has affected demand in the economy. Kenya Bankers Association says a uniform tax adjustment would help restore household incomes while also supporting long-term stability in public finances.
The association is proposing a “uniform 5% reduction in PAYE across all income bands,” saying this would increase disposable income and boost consumption. It argues that higher spending would support businesses and stimulate broader economic activity.
The banking sector estimates that the proposal would “release Sh28.1 billion into the economy every year” and “generate close to Sh42 billion in immediate GDP output.” It says the additional money in circulation would improve business performance across different sectors.
It further projects that the policy could “make up to Sh140 billion available for bank loans to MSMEs,” which it identifies as key drivers of jobs and enterprise growth. The association also estimates that the proposal could “support approximately 36,000 jobs every year” and “expand GDP by about Sh210 billion over the medium term,” arguing that stronger economic activity would help recover any initial revenue losses.
Beyond growth projections, the association has raised concerns about fairness in the tax system. It notes that “the current top PAYE rate of 35% is higher than the 30% corporate tax rate,” adding that “individuals should not be taxed more heavily than companies,” in line with the National Tax Policy.
The banking industry says reducing PAYE would increase household income, strengthen demand for goods and services, and improve access to credit for micro, small, and medium enterprises, which often struggle to secure financing.
It adds that higher disposable incomes would encourage consumption, allowing businesses to expand and hire more workers, which would further support economic recovery.
However, the proposal is expected to face scrutiny from policymakers concerned about revenue collection and fiscal pressure, especially given ongoing government spending commitments.
The sector maintains that any short-term loss in tax revenue would be offset over time through economic expansion, as a stronger economy would widen the tax base and improve collections.
The proposal adds momentum to ongoing discussions on taxation, cost of living, and economic recovery as debate continues on how to balance household welfare, growth, and fiscal stability.