The Kenya Bankers Association (KBA) has stepped up its advocacy for a fairer tax regime, proposing a uniform 5% reduction across all Pay As You Earn (PAYE) tax bands. This move directly reflects recent policy indications from the National Treasury, where the Cabinet Secretary signaled an intent to deliver tax relief to hard, pressed citizens.
The push for an immediate tax overhaul comes at a time when Kenyan workers are grappling with a widening gap between gross and net pay. Progressive increases in statutory contributions, including the 2.75% Social Health Authority, the 1.5% Affordable Housing Levy, and escalating retirement deductions, have dramatically eroded household purchasing power.
By implementing the proposed 5% PAYE cut and capping the highest tax bracket at 30%, the government would correct this structural distortion. According to financial analysts, this adjustment would inject billions of shillings back into the pockets of the workforce, offering a vital financial buffer to households facing an elevated cost of living.
The benefits of the proposed restructuring extend far beyond individual financial relief. For the financial sector, healthier net income for workers translates directly into robust economic performance and market stability.
- Enhanced Loan Repayment: Higher disposable income improves the capacity of borrowers to service formal loans, stabilizing bank portfolios.
- Credit Expansion: Unlocking higher borrowing capacity could free up significant formal lending for both families and micro, small, and medium enterprises, MSMEs.
- Consumption Multiplier: The direct injection of cash into the economy is projected to expand Gross Domestic Product, GDP, output as consumers spend more on local retail, agriculture, and manufacturing.
The proposed framework seeks to establish an equitable tax structure by raising thresholds to cushion low income earners, keeping income up to Ksh. 30,000 entirely tax free. Middle bands would be progressively graduated before hitting a firm 30% cap on higher income levels, completely eliminating the punitive 32.5% and 35% brackets.
While the government has historically relied heavily on direct labour taxes to meet immediate fiscal needs, KBA emphasizes that sustainable revenue generation is a byproduct of economic expansion, not aggressive tax rates. The initial revenue forgone through PAYE relief is highly likely to be recovered through enhanced collections of indirect taxes, such as VAT and excise duties, driven by a revitalized, active workforce. Ultimately, a fairer tax system should support both the resilience of workers and long term economic growth.