PAYE changes: Mbadi reveals when Bill will reach Parliament and Tax bands to be retained

National Treasury Cabinet Secretary John Mbadi and National Assembly Finance and Planning Committee chair Kuria Kimani say a Bill to implement President William Ruto’s proposed Pay As You Earn (PAYE) changes is expected in Parliament next week, with the plan targeting workers earning up to Sh32,333 a month.

The proposed changes would set the tax rate on monthly income up to Sh32,333 at zero per cent and abolish personal relief, while retaining the existing higher PAYE tax bands of 25 per cent, 30 per cent, 32.5 per cent and 35 per cent.

Speaking during a discussion on the proposals, Mbadi said the government intended to eliminate personal relief and instead exempt income within the proposed lower band directly through a zero tax rate.

“We tax you at zero up to 32,333. That attracts a zero per cent tax,” Mbadi said, adding that the government had settled on the lower-band adjustment while leaving changes to other tax bands for a future discussion.

The proposal follows Ruto’s announcement during the Mashujaa Day celebrations in Eldoret on Tuesday, when he said the government had prepared measures to increase the amount of money workers retain from their salaries.

“First, we have prepared a proposal to exempt Kenyans earning Sh32,333 per month or less from paying as you earn income tax,” Ruto said.

The President said the measure was intended to ease the financial pressure on workers with modest incomes by leaving them with more money for household expenses.

Mbadi said a worker earning Sh32,333 a month would retain an additional Sh2,083 under the proposed changes.

“For someone who is earning a lot of money it may sound ridiculous, but for someone who is earning that 32,000, it is something,” he said.

The Treasury CS acknowledged concerns that deductions introduced in recent years had reduced workers’ take-home pay. He cited contributions associated with the Social Health Authority (SHA) and the housing levy, saying the PAYE proposal was intended to cushion workers, particularly those on lower and middle incomes.

Mbadi said Kenya had 3,468,997 people in formal employment, of whom 1,328,625 were already exempt from PAYE under the existing income tax exemption threshold.

He said the proposed changes would remove a further 362,846 people from the tax-paying category, leaving approximately 1.78 million formal employees paying PAYE.

The figures were presented by Mbadi during the discussion and relate to the government’s explanation of the proposed changes.

Kuria, who chairs the National Assembly’s Finance and Planning Committee, said a Bill was expected to be brought before the House next week to give effect to the announcement. The proposal will require legislative action before it can be implemented.

The existing higher tax bands are not being changed under the current proposal. This means the plan is focused on expanding the portion of monthly income taxed at zero per cent rather than reducing the marginal rates applied to higher income bands.

The government’s proposal comes as the Kenya Bankers Association (KBA) calls for a wider reduction in PAYE across all income brackets.

Speaking on Thursday during the release of the 2025 Total Tax Contribution Report, KBA chief executive Raimond Molenje proposed a five-percentage-point cut across the income tax bands, arguing that a broader reduction could increase disposable income, stimulate local spending and support business growth.

Molenje said tax changes should also help expand domestic production, create jobs and rebuild public trust in government.

He illustrated the potential impact using a teacher earning Sh60,000 a month in Nairobi, arguing that additional take-home pay could circulate through local businesses.

“If we make an adjustment to PAYE by just five per cent, a teacher earning that amount would have an additional Sh3,000,” Molenje said.

He argued that the extra income could be spent in local markets, supporting traders and small businesses.

“That teacher will not take a flight to Dubai to spend the Sh3,000 extra. What the teacher will do is walk straight to Gikomba and buy a school uniform for the child, a purchase that had been pending,” he said.

Molenje described how such spending could benefit a chain of businesses, from a tailor receiving an order to a small trader selling groceries, potentially supporting employment and economic activity.