NAIROBI, Kenya- The banking industry has proposed a 5pc reduction in Pay As You Earn (PAYE) tax rates across all bands, aiming to restore purchasing power, stimulate economic growth, and strengthen government revenue.
The move comes alongside the government’s plan to zero-rate PAYE for workers earning up to Sh30,000 per month, which the banking sector welcomes as timely relief amid rising cost-of-living pressures on Kenyan households and businesses.
The measure is expected to offset the progressive increase in National Social Security Fund (NSSF) contributions, which will require both employers and employees to contribute up to six percent of pay by February 2027.
The cumulative effect of these deductions has increased the financial burden for workers and employers, particularly those without pension schemes.
Industry leaders have also recommended that the highest PAYE rate be capped at 30 percent, aligning with the National Tax Policy approved in 2023, which stipulates that personal income tax should not exceed the corporate tax rate.
Banking Industry 5% PAYE Reduction Proposal to Boost GrowthTo restore purchasing power, stimulate economic growth, and strengthen government revenue, the banking industry proposes a 5% reduction in Pay As You Earn (PAYE) tax rates across all existing bands.We welcome the
According to the proposal, a uniform 5pc PAYE reduction across all bands will increase disposable income, boost household consumption, and stimulate growth in productive sectors such as manufacturing and agriculture.
The approach is expected to broaden the tax base and enable the government to achieve stronger revenue performance through VAT, excise duty, and corporate income taxes, rather than relying heavily on labour taxation.
Reducing the tax burden on workers is also expected to support job creation, particularly in sectors where employment growth is linked to domestic demand and labour affordability.
Higher take-home pay will improve borrowers’ repayment capacity and expand access to credit for households and Micro, Small, and Medium Enterprises (MSMEs), supporting entrepreneurship and investment programs such as the ongoing NYOTA programme.
The banking industry says the proposed PAYE reduction will help reinvigorate economic growth, generate both formal and informal employment, and reverse the slowdown in business activity often observed ahead of general elections.
Industry leaders affirmed their commitment to supporting individuals and businesses and driving double-digit private sector credit growth in 2026 and beyond, contributing to a more vibrant, inclusive, and resilient Kenyan economy.
