PAYE Tax Reversal Sparks Outcry from Bankers, Accountants, and Lawyers

A recent shift in government policy on Pay As You Earn (PAYE) taxation has triggered strong criticism from key professional groups, including bankers, accountants, and lawyers, who argue that the move places further pressure on already overburdened salaried workers.

The controversy stems from the omission of expected PAYE relief measures in the Finance Bill 2026. Earlier discussions within the National Treasury had suggested possible adjustments to income tax bands and relief thresholds aimed at easing the burden on low- and middle-income earners. However, when the final version of the bill was released, those proposed changes were noticeably absent, prompting concern and disappointment among stakeholders.

Financial sector players were among the first to react. Banking industry representatives warned that high PAYE deductions reduce disposable income, which in turn affects household spending, savings, and loan repayment capacity. According to them, when workers take home less money, the ripple effect is felt across the economy, including slower credit uptake and reduced business activity.

Accountants and tax professionals have also joined the debate, arguing that Kenya’s current income tax structure is outdated and places a disproportionate burden on salaried individuals. They note that tax brackets are compressed, meaning employees quickly move into higher tax bands even at modest income increases, leaving many workers with limited take-home pay despite salary adjustments.

Professional accounting bodies have long advocated for a review of the PAYE system. They propose widening tax bands and raising the tax-free income threshold to reflect current economic realities, including inflation and rising living costs. Such reforms, they argue, would improve fairness in the tax system while increasing disposable income for millions of workers.

Lawyers have added their voice to the growing criticism, focusing on what they describe as policy inconsistency. Legal experts argue that frequent changes or reversals in tax proposals undermine predictability in fiscal policy, making it difficult for individuals and businesses to plan effectively. They stress that stable and transparent tax systems are essential for maintaining public trust and encouraging investment.

At the heart of the debate is the growing concern over declining net salaries in Kenya. Workers are currently subject to multiple statutory deductions, including contributions to the Social Health Insurance Fund (SHIF), the National Social Security Fund (NSSF), and the Affordable Housing Levy. Many critics argue that adding a heavy PAYE burden on top of these deductions leaves employees with significantly reduced take-home pay.

Banking stakeholders warn that this situation could slow economic growth. Reduced consumer spending limits demand for goods and services, which ultimately affects business revenues and profitability. They argue that easing PAYE could stimulate economic activity by increasing purchasing power among households.

On the other hand, the government faces competing fiscal pressures. Treasury officials have previously indicated that any reduction in income tax must be carefully balanced against revenue needs, including debt repayment obligations and funding for essential public services such as education, healthcare, and infrastructure development.

The government has defended its broader tax strategy, emphasizing the need to maintain fiscal stability in a challenging economic environment. However, critics insist that tax relief for workers should remain a priority, especially at a time when the cost of living continues to rise.