The Kenya Bankers Association (KBA) has proposed a significant revision of the Pay As You Earn (PAYE) tax bands, recommending an increase in the minimum taxable income from Ksh24,000 to Ksh30,000 while capping the highest rate at 30 per cent.
Under the proposal, income below Ksh30,000 would be exempt from PAYE, income between Ksh30,001 and Ksh50,000 would be taxed at 15 per cent, Ksh50,001 to Ksh100,000 at 20 per cent, Ksh100,001 to Ksh400,000 at 25 per cent, and any income above Ksh400,000 would attract the top rate of 30 per cent.
The recommendation comes as the National Treasury seeks public input ahead of drafting the Finance Bill 2026, with KBA arguing that higher take-home pay would boost household spending and strengthen the economy.
“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. He added, “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.”
KBA highlighted that beyond supporting households, the proposal could have a major impact on Micro, Small, and Medium Enterprises (MSMEs). Increased disposable income would drive higher consumption, boost sales, improve cash flow, and enhance loan repayment performance for these businesses.
The bankers also argued that the proposed PAYE adjustments could spur job creation. With reduced tax burdens, businesses could redirect resources toward hiring, especially targeting youth and entry-level employees amid rising unemployment.
Additionally, KBA emphasized that higher disposable income would encourage long-term savings and investments while improving credit health. More reliable loan repayment, they noted, would reduce default rates and strengthen the stability of financial institutions.
Importantly, the association rejected concerns that lowering PAYE would shrink government revenue, asserting that increased consumption and expanded business activity would broaden the tax base and potentially generate higher long-term revenue.
This proposal reflects KBA’s call for fiscal measures that not only relieve household financial pressure but also stimulate economic growth and support business development across Kenya.
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