Treasury pushes back PAYE tax relief timelines amid consulatations - details

Salaried workers in Kenya will have to wait longer before seeing any reductions in their monthly income tax deductions.

The National Treasury has delayed its initial plans to introduce new legislation reviewing the Pay As You Earn (PAYE) tax bands by the end of September 2026, shifting public participation activities to the first week of October.

National Treasury Cabinet Secretary John Mbadi announced that the decision to adjust the schedule stems from the need to comply with constitutional public participation requirements.

“Kenya has become what it is because of the Constitution that we have. If I bring them without public participation, someone might go to court to stop it,” Mbadi stated

The Cabinet Secretary noted that rushing the legislation without adequate public and stakeholder involvement could expose the tax proposals to protracted court battles and potential legal invalidation.

“This month is a bit crowded. I will do it immediately in the first week of October,” he said.

The planned tax adjustments initially directed by President William Ruto to alleviate economic pressures on formal employees focus primarily on low- and middle-income earners. Key elements of the original proposal include:

Tax-Exempt Base: Increasing the tax-free PAYE threshold from the current KSh 24,000 to KSh 30,000 per month, exempting approximately 3.4 million low-income workers from direct income tax.

Reduced Rates for Middle Income: Lowering the tax rate applied to earnings between KSh 30,000 and KSh 50,000 from 30% down to 25%.

However, the final structure remains pending as the government evaluates alternative submissions from business and industry leaders.

Employer groups, including the Federation of Kenya Employers, have advocated for broader tax brackets to preserve employee purchasing power, while the Kenya Bankers Association has suggested a uniform 5% tax reduction across all income bands to stimulate broader economic activity.

The delay highlights the structural challenge faced by the Exchequer in balancing worker relief against public revenue targets.

Treasury estimates indicate that raising the tax-free baseline to KSh 30,000 alone could lead to an annual revenue foregone of approximately KSh 35 billion for the Kenya Revenue Authority (KRA).

Because the proposals were omitted from the initial enactment of the Finance Bill 2026, the government must formulate a standalone Tax Laws Amendment Bill.

Mbadi also indicated that his international engagements would form part of the timeline for communicating the government’s tax reforms.

“I will break it when I am going for the spring meeting, then come back and conclude it, then we process the Bill through the National Assembly,” he said.

Following the completion of public participation in October, the consolidated bill will be presented to Parliament for debate, committee review, and formal approval before any adjustments can take effect on employee payslips.