Kenya’s financial institutions are requesting a reassessment of Pay As You Earn (PAYE) tax brackets, suggesting that reducing the tax load on employees with salaries may boost spending and aid an economy experiencing sluggish household purchasing power.
The Kenya Bankers Association, in submissions made to the National Treasury prior to the Finance Bill 2026, contends that current PAYE rates are reducing disposable incomes and restraining consumption, while households face high living costs, increased interest rates, and sluggish economic growth.
The bankers wish to see the minimum taxable income increased from Ksh24,000 to Ksh30,000, and the top PAYE rate limited to 30 per cent. It is contended that the existing framework, with a maximum tax rate of 35 per cent on monthly earnings exceeding Ksh800,000, hinders productivity and restricts workers’ capacity to save, spend, and invest.
Under the proposed changes, lower and middle-income earners would receive reduced tax rates across multiple income brackets, whereas top earners would face a lower cap on PAYE than the existing structure. The association also recommends an increase in monthly tax relief from Ksh2,400 to Ksh3,000 to provide additional protection for workers.
The proposed review, as stated by KBA, is intended to increase disposable income and revive consumer confidence. Banks claim that when workers receive higher take-home pay, they tend to spend more on goods and services, thereby supporting businesses, especially micro, small and medium-sized enterprises that heavily depend on household expenditure.
Bankers also argue that higher consumption would ultimately benefit the government through increased value-added tax revenues and stronger overall economic performance, offsetting revenue losses from reduced PAYE rates.
It is claimed that the proposal is in line with wider initiatives aimed at boosting growth without placing an undue burden on taxpayers.
Kenya’s economy has been experiencing pressure due to rising living expenses, primarily caused by escalating fuel prices, escalating food inflation, and the imposition of higher taxes as a result of recent financial legislation. Despite modest wage increases, household demand has remained soft, with numerous employees reporting decreased buying power.
The PAYE proposal is included in a broader range of submissions from various stakeholders as the National Treasury prepares the Finance Bill 2026.
The Treasury will assess the proposals in conjunction with revenue requirements, government debt commitments and the government’s economic recovery strategy before submitting the bill to Parliament.
Adoption of the changes would signal a substantial change in Kenya’s income tax policy, with banks anticipating that the relief will result in increased household spending, enhanced business performance, and a more stable economic outlook.
