Kenya's banking sector is championing a significant overhaul of the Pay As You Earn (PAYE) tax system, pressing the government to provide relief to salaried employees whose purchasing power has been decimated by inflation and a raft of new taxes. The proposal, submitted to the National Treasury for consideration in the upcoming Finance Bill 2026, argues that putting more money in workers' pockets is essential for economic revival.

At the heart of the proposal by the Kenya Bankers Association (KBA) is a call to raise the minimum taxable income from the current KES 24,000 to KES 30,000 per month. This would immediately exempt the lowest-paid workers from income tax. For those earning more, the KBA suggests a new, more gradual tax structure, capping the highest tax rate at 30% for incomes above KES 400,000, a reduction from the current 35% applied to earnings over KES 800,000.

Putting Food on the Table

The push for tax relief comes as Kenyan households grapple with a severe cost of living crisis. Stagnant wages have failed to keep pace with soaring prices for essentials like food, fuel, and transport. “The purchasing power of salaried Kenyans has fallen significantly in recent years,” noted KBA Chief Executive Raimond Molenje. He emphasized that adjusting the PAYE bands is a practical measure to restore household income, which in turn would stimulate spending and support local businesses.

To illustrate the impact, consider a worker earning KES 50,000.

• Current System: After deductions, their take-home pay is approximately KES 42,617.
• Proposed System: Their tax would drop to KES 3,000, increasing their take-home pay to about KES 47,000—an extra KES 4,383 in their pocket each month.

This increase, bankers argue, would flow directly into the economy, boosting sales for Micro, Small, and Medium Enterprises (MSMEs) which are heavily reliant on consumer spending.

A Bigger Economic Pie

The KBA refutes the idea that lower tax rates would automatically lead to a drop in government revenue. Instead, they project that a more vibrant economy, fueled by increased consumer spending and business investment, would naturally broaden the tax base. This growth could ultimately generate more sustainable revenue for the government in the long run. The association also highlighted that improved household cash flow would lead to better loan repayment rates, reducing default risks and strengthening the stability of the financial sector.

The proposal is now in the hands of the National Treasury, which will weigh it against the country's revenue needs and debt obligations. As public participation on the Finance Bill 2026 gets underway, the debate will centre on whether this tax relief is the key to unlocking Kenya's economic potential or a risk to its fiscal stability.