Bankers Push for Downward Review of PAYE, Raise Minimum Taxable Income to Ksh30,000

The Kenya Bankers Association has proposed the downward review of the Pay As You Earn (PAYE) tax bands as part of a proposal to raise the minimum taxable income from Ksh24,000 to Ksh30,000 while capping the highest band at 30 per cent.

Under the proposal, the industry suggests that income below Ksh30,000 be exempt from PAYE, income between Ksh30,001 and Ksh50,000 be taxed at 15 per cent, income from Ksh50,001 to Ksh100,000 at 20 per cent, income between Ksh100,001 and Ksh400,000 at 25 per cent, and any income above Ksh400,000 at 30 per cent.

The proposal comes at a critical time when the National Treasury called for public participation ahead of the drafting of the Finance Bill 2026, with the bankers arguing that increased disposable income would stimulate household spending.

Families with more money left after taxation, KBA argued, would be better positioned to afford basic needs and discretionary purchases.

''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,'' said KBA CEO Raimond Molenje, adding that when workers take home more pay, they spend more, save more, and invest more, strengthening the economy, improving loan repayment, and ultimately growing government revenue.

Under the current PAYE regime, a Kenyan earning Ksh50,000 per month takes home approximately Ksh42,617 after tax, once the applicable bands and personal relief are factored in. This means roughly Ksh7,383goes to PAYE before accounting for other statutory deductionssuch as NSSF, SHIF, or the Housing Levy.

Under the KBA’s PAYE reform proposal, the same earner would pay only Ksh3,000 in tax, since the first Ksh30,000 would be exempt and the remaining Ksh20,000 would be taxed at 15 per cent. This would raise the take-home salary to about Ksh47,000, representing an increase of nearly Ksh4,383 every month.

According to the bankers, beyond benefiting households, the proposal, if adopted by the government, could significantly impact Micro, Small, and Medium Enterprises (MSMEs). They noted that increased cash circulation in the economy, driven by higher take-home pay, could boost MSMEs through improved sales, enhanced cash flow, and better loan repayment performance.

At the same time, the associationmaintained that the proposed PAYE adjustmentswould spur job creation. With reduced tax pressure, businesses could allocate more resources to hiring, particularly targeting youth and entry-level workers, at a time when the country is grappling with high unemployment.

KBA also argued that higher disposable income would not only boost consumer spending but could also promote long-term savings and investments.

They further cited better credit health as a likely outcome. With increased disposable income and improved cash flow, borrowers could service their loans more reliably, reducing default rates and reinforcing the stability of financial institutions, the association said.

Importantly, KBA rejected the notion that reduced PAYE would shrink government revenues, arguing that increased consumption and heightened business activity would expand the tax base and potentially generate even more revenue in the long run.