Calls for a comprehensive review of Pay As You Earn (PAYE) tax bands dominated discussions during stakeholder submissions to the Departmental Committee on Finance and National Planning as debate on the Finance Bill, 2026 intensified.
A broad coalition of professional bodies, financial institutions, and audit firms warned that Kenya’s current income tax structure is increasingly placing an unsustainable burden on salaried workers, especially low- and middle-income earners whose disposable income continues to shrink under rising statutory deductions.
At the centre of the submissions was a strong push to restructure PAYE bands, widen income thresholds, and reduce top marginal tax rates to restore fairness and stimulate household spending.
ICPAK flags “regressive” tax system and narrow bands
The Institute of Certified Public Accountants of Kenya (ICPAK) led the calls, arguing that the current PAYE framework has become effectively regressive due to overlapping statutory deductions introduced over the last two years.
ICPAK noted that deductions such as the Social Health Insurance Fund (SHIF), the Affordable Housing Levy, and enhanced NSSF contributions have significantly reduced net salaries, especially for workers in lower income brackets.
The accountants warned that the current structure pushes workers into higher tax brackets too quickly.
They pointed out that the 30 percent PAYE rate now applies to individuals earning slightly above KSh 32,333 per month, while those earning above KSh 500,000 face top rates ranging between 32.5 percent and 35 percent, a structure they described as overly compressed and punitive.
ICPAK further compared Kenya with regional peers, citing Ghana where the 30 percent tax band only applies to monthly incomes exceeding approximately KSh 255,000.
To address these concerns, ICPAK proposed a major restructuring of tax bands, including reducing the top PAYE rate from 35 percent to 28 percent to align with proposed corporate tax reforms.
The institute recommended a simplified progression structure of 10 percent, 15 percent, 20 percent, 25 percent, and 28 percent.
ICPAK also proposed increasing the lowest taxable threshold to KSh 30,000 and raising personal monthly relief from KSh 2,400 to KSh 3,000 to cushion low-income earners.
Bankers warn of shrinking take-home pay
The Kenya Bankers Association (KBA) echoed similar concerns, warning that rising statutory deductions have significantly eroded the purchasing power of salaried Kenyans.
KBA presented data showing that workers earning around KSh 100,000 monthly have experienced a 7.74 percent decline in net take-home pay between January 2023 and early 2026.
The association attributed the decline to cumulative statutory deductions including SHIF, the Affordable Housing Levy (AHL), and increased NSSF contributions.
KBA proposed a uniform five percent reduction across PAYE bands, effectively lowering the top tax rate from 35 percent to 30 percent.
The bankers also recommended expanding lower tax brackets and raising the tax-free threshold to KSh 30,000, arguing that such reforms would restore household consumption and support economic recovery.
Lawmakers signal support for progressive tax reforms
Members of Parliament sitting on the committee acknowledged the concerns raised by stakeholders and signalled openness to reviewing PAYE structures to enhance fairness and equity in taxation.
Julius Rutto noted that although the Finance Bill initially lacked provisions on PAYE band adjustments, there was growing consensus that higher earners should shoulder a larger tax burden.
He emphasized the need to align taxation with the ability-to-pay principle, stating that increasing the tax-free threshold to KSh 30,000 was under consideration.
Similarly, John Ariko supported a progressive taxation approach, arguing that wealth redistribution through taxation is essential for equity and social balance.
He stressed that individuals with higher incomes should contribute a proportionally larger share to national revenue, reinforcing the principle of fairness in public finance.
Committee weighs revenue trade-offs
Committee Chairperson Kuria Kimani acknowledged that while the government had previously committed to reviewing PAYE bands, fiscal simulations indicated a potential revenue shortfall of approximately KSh 35 billion if the lowest taxable income threshold is increased to KSh 30,000.
He assured stakeholders that the committee would carefully evaluate the fiscal impact, balancing increased disposable income for households against possible revenue losses.
Kimani emphasized that any reforms must ensure fairness to taxpayers while maintaining sustainability in public finance.
Audit firms back reforms but urge caution
Audit firm Deloitte also supported calls for restructuring PAYE bands, recommending amendments to the Income Tax Act to reduce the burden on low-income earners while improving progression across higher tax brackets.
The firm proposed capping the maximum PAYE rate at 30 percent and introducing additional intermediary bands to create a smoother tax progression curve.
Deloitte further noted that the reforms align with Kenya’s Bottom-Up Economic Transformation Agenda (BETA) and the Medium-Term Revenue Strategy for FY 2024/25–2026/27, which advocates improved tax fairness and harmonisation between personal and corporate income tax rates.
Balancing equity and revenue remains key challenge
As deliberations continue, the Finance Committee faces the difficult task of balancing pressure to ease the burden on households while maintaining sufficient revenue to fund national priorities.
While stakeholders strongly advocate for wider tax bands, higher thresholds, and reduced top rates, government projections continue to highlight potential fiscal gaps that may require either spending adjustments or alternative revenue sources.
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For now, the direction of debate remains clear: Kenya’s PAYE system is under intense scrutiny, and significant reforms may be on the horizon as Parliament continues deliberations on the Finance Bill, 2026.
By Hillary Muhalya
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