Efforts to ease the tax burden on Kenyan salaried workers have suffered a setback after Members of Parliament declined proposals seeking to reduce Pay As You Earn (PAYE) rates during discussions on the Finance Bill 2026. The decision means employees will continue operating under the current income tax structure despite ongoing public pressure for relief.
During the budget review process, several professional bodies, private sector groups, and economic analysts pushed for a review of PAYE thresholds.
They argued that the existing tax bands are increasingly punitive, especially for low- and middle-income earners who have seen their disposable income shrink due to rising living costs and multiple statutory deductions.
Among the proposals tabled was a call to adjust income tax bands upward and lower marginal tax rates, with the aim of increasing workers’ take-home pay. Advocates of the change also argued that higher disposable income would stimulate consumer spending and support broader economic growth.
However, parliamentary committees reviewing the Finance Bill did not adopt the recommendations. Lawmakers cited concerns over potential revenue losses, warning that reducing PAYE at this time could create funding gaps in critical government programmes and increase reliance on borrowing.
The National Treasury has defended the Finance Bill, stating that the government’s fiscal strategy is focused on long-term reforms rather than immediate tax cuts on employment income.
Officials explained that efforts are underway to widen the tax base by improving compliance and increasing contributions from sectors such as digital services, online trade, and informal businesses, which remain largely under-taxed.
According to Treasury officials, this approach is intended to distribute the tax burden more evenly across the economy while gradually creating room for future relief to salaried workers.
They added that discussions around possible adjustments to PAYE structures are still ongoing and have not been completely ruled out.
Despite these assurances, the exclusion of PAYE reductions from the Finance Bill has drawn criticism from various quarters. Many workers and advocacy groups argue that Kenyan employees are already heavily taxed, with deductions such as PAYE, Social Health Authority contributions, National Social Security Fund (NSSF) payments, and housing levy significantly reducing net earnings.
Critics further contend that while the government invited public participation in the Finance Bill process, many of the proposals submitted by citizens and institutions were not reflected in the final version presented to Parliament. This has raised concerns about the effectiveness of public engagement in shaping fiscal policy.
On the other hand, supporters of the current policy maintain that maintaining existing tax levels is necessary to safeguard economic stability.
They argue that sudden reductions in PAYE without alternative revenue streams could widen the fiscal deficit and force the government to increase borrowing, potentially worsening Kenya’s debt situation.
