Bankers push for PAYE relief amid rising cost pressures
By Ascah Mwango, December 20, 2025Kenyan banks have called for a review of Pay As You Earn (PAYE) tax bands, saying lowering the tax burden on salaried workers could stimulate spending and support an economy struggling with weak household demand.
In proposals submitted to the National Treasury ahead of the Finance Bill 2026, the Kenya Bankers Association argues that existing PAYE rates are eroding disposable incomes and curbing consumption, even as households contend with the high cost of living, elevated interest rates and slow economic growth.
The bankers want the minimum taxable income raised from Ksh24,000 to Ksh30,000 and the top PAYE rate capped at 30 per cent. They argue that the current structure, which has a maximum rate of 35 per cent for monthly incomes above Ksh800,000, discourages productivity and limits the ability of workers to save, spend and invest.
Under the proposed changes, lower and middle-income earners would benefit from reduced tax rates across several income brackets, while the top earners would face a lower ceiling on PAYE compared to the current structure. The association also proposes an increase in monthly tax relief from Ksh2,400 to Ksh3,000 to further cushion workers.
According to KBA, the proposed review is aimed at boosting disposable income and restoring consumer confidence. Banks argue that when workers take home more pay, they are more likely to spend on goods and services, which in turn supports businesses, particularly micro, small and medium enterprises that rely heavily on household consumption.
The bankers also contend that higher consumption would ultimately benefit the government through increased value-added tax collections and stronger overall economic activity, offsetting revenue losses from lower PAYE rates.
They say the proposal aligns with broader efforts to stimulate growth without overburdening taxpayers.
Kenya’s economy has faced pressure from rising living costs, driven by higher fuel prices, food inflation and increased taxes introduced in recent finance laws. Household demand has remained weak, with many workers reporting reduced purchasing power despite modest wage growth.
The PAYE proposal is part of wider submissions by various stakeholders as the National Treasury prepares the Finance Bill 2026.
The Treasury is expected to review the proposals alongside revenue needs, public debt obligations and the government’s economic recovery agenda before presenting the bill to Parliament.
If adopted, the changes would mark a significant shift in Kenya’s income tax policy, with banks hoping the relief will translate into stronger household spending, improved business performance and a more stable economic outlook.