A fresh push to reduce the highest tax charged on salaries has landed before MPs, with private sector players arguing that cutting Pay As You Earn from 35 per cent to 30 per cent could ease pressure on workers, strengthen household spending, and still keep government revenue on an upward path.
Appearing before the National Assembly Finance and National Planning Committee on Tuesday, the Kenya Private Sector Alliance urged lawmakers to revise the Finance Bill, 2026 and adjust the Income Tax Act so that PAYE bands are reworked and the top rate brought down to 30 per cent across all income levels.
The group, made up of employers, bankers and accountants, said salaried workers are facing heavy strain from rising living costs and multiple statutory deductions, which have reduced take-home pay and weakened demand in the economy.
Dr Jaswinder Bedi led the presentation and told MPs that the current tax setup places individuals under a heavier burden compared to companies.
"Kepsa proposes amending the Third Schedule of the ITA to compress and expand the bands so that the maximum PAYE rate is capped at 30 per cent," Kepsa Chairperson Jaswinder Bedi said.
Under the proposal, monthly PAYE would be structured at 10 per cent for the first Sh30,000, 20 per cent on the next Sh8,333, 25 per cent on the next Sh461,667, 27.5 per cent on the next Sh300,000 and 30 per cent on income above Sh800,000.
They are also pushing for changes to relief levels to ease pressure on low and middle earners.
"We also propose an increase of the monthly personal relief to Sh3,000, setting a tax-free threshold at Sh30,000,” he said.
Bedi said workers have experienced reduced purchasing power due to inflation and additional payroll deductions such as housing and health contributions, which have eaten into salaries.
He argued that aligning personal tax with corporate tax would make the system more balanced.
"Capping the rate at 30 per cent aligns with the Medium-Term Revenue Strategy to harmonise individual top rates with corporate rates," he said.
He added that a five per cent cut in PAYE could return income to workers and stimulate economic activity across sectors.
"This five per cent relief would inject Sh28.1 billion back to workers, boosting household spending, increasing indirect tax collection, reducing non-performing loans (NPLs), and driving a Gross Domestic Product output boost of Sh 210 billion in the first year," Dr Bedi said.
He further argued that the proposal would still allow the government to recover revenue through wider economic activity.
"This ultimately generates Sh27.1billion –Sh31.5 billion in tax revenue, offsetting the initial government shortfall while creating thousands of jobs."
Kenya Bankers Association Chief Executive Officer Raimond Molenje backed the idea, saying higher disposable income would improve borrowing and repayment levels in the banking sector.
"Kenya Revenue Authority will collect up to Sh33 billion in taxes and this will effectively seal the gap created by the foregone five per cent PAYE," he said.
Tax experts also told MPs that salaried workers carry a heavier tax load compared to other parts of the economy.
He said formal salaried employees under the PAYE framework are tax compliant by default and possess no avenues to defer or mitigate their tax liabilities. "They shoulder a disproportionate percentage of direct domestic tax obligations compared to the informal economy. Expanding the bands offers immediate relief. Keeping net pay stable does not mean a net loss for the government. Formal employees spend the vast majority of their disposable income immediately on household goods," Mwaura said. "Elevating net take-home pay directly triggers consumer spending, driving immediate, predictable return revenue Added Tax (VAT) and Excise Duties at the point of sale."
Data from the Kenya National Bureau of Statistics Economic Survey 2026 showing 4.6 per cent GDP growth in 2025 was also cited as support for the argument that stronger household spending could lift economic performance further.