The National Treasury will return to Parliament in September with a fresh proposal to lower payroll taxes, offering hope to salaried workers whose take-home pay has been reduced by a series of mandatory deductions.
The planned law is expected to address growing concerns over shrinking payslips after months of public complaints about PAYE, the Affordable Housing Levy and contributions to the Social Health Insurance Fund (SHIF).
Treasury Cabinet Secretary John Mbadi said the changes were not included in the Finance Bill, 2026, because public participation produced more recommendations than the government's initial proposal to increase the tax-free income threshold from Sh24,000 to Sh30,000. He said all the views collected will now be combined into a separate Tax Amendments Bill that will be presented to Parliament in September, less than a year before the August 2027 General Election.
"I know that the concerns have been on pay slips. Next month, I am embarking on public engagement on how to reduce the tax burden on pay slips," Mbadi said yesterday.
"We proposed one option, but we also received proposals including reducing PAYE by five percentage points across the board. By the end of August, we want to consolidate all the suggestions and, with the agreement of President Ruto, introduce legislation in September so that Kenyans get some relief on their pay slips."
The planned changes signal a new approach by the Treasury, which had previously maintained that reducing PAYE would lower government revenue by about Sh35 billion every year.
Calls for a review have also come from Parliament. While considering the Finance Bill, 2026, the National Assembly's Finance and National Planning Committee proposed increasing monthly personal tax relief from Sh2,400 to Sh3,000 and reviewing all income tax bands to ease the burden on workers.
Committee chairperson Kuria Kimani said deductions introduced through SHIF and the Affordable Housing Levy had increased the amount employees surrender from their salaries every month.
"The committee recommends that the National Treasury overhauls all the tax bands. The Treasury has the necessary data and analytical tools to undertake a comprehensive review," he said.
The proposal attracted support during public participation from the Institute of Certified Public Accountants of Kenya (ICPAK), the Kenya Bankers Association (KBA), Deloitte, the Law Society of Kenya (LSK) and Grant Thornton.
The organisations proposed reducing the entry PAYE rate to 10 per cent for the first Sh30,000 of monthly income, 15 per cent for the next Sh30,000 and limiting the highest tax rate to 30 per cent for people earning more than Sh500,000 a month.
Kenya's current PAYE system has five tax bands, with the highest rate of 35 per cent charged on monthly incomes above Sh800,000.
ICPAK said the existing tax bands are too narrow, making workers move into higher tax rates even when their earnings are still relatively low.
"The current PAYE bands are narrow, meaning higher tax rates apply at relatively lower income levels. This places an unfair burden on lower-income earners," the institute said.
The Treasury had earlier opposed lowering PAYE because of concerns that it would reduce revenue at a time when public finances are facing pressure from global economic challenges.
The government is already expecting to lose about Sh32 billion after reducing VAT on petroleum products by half to protect consumers from higher fuel prices caused by the conflict in the Middle East.
Even with those revenue concerns, President William Ruto directed that payroll tax relief should go ahead before the 2026 Budget, setting aside the Treasury's earlier position against the move.