Why bankers are pushing for universal PAYE reduction as Govt targets low earners

The Kenya Bankers Association (KBA) has entered the national tax debate with a bold counter-proposal, advocating for a universal 5% point reduction in Pay As You Earn (PAYE) taxes across all income brackets.

This stance contrasts directly with President William Ruto’s ongoing initiative to exempt low-income workers earning Sh32,333 or less per month from the tax altogether.

The debate highlights a growing friction between private sector financial strategies and government fiscal policy as authorities seek sustainable ways to ease the cost of living while maintaining national revenues.

Speaking during the release of the 2025 Total Tax Contribution Report, KBA Chief Executive Officer Raimond Molenje argued that tax relief should not be restricted exclusively to lower-income brackets.

Instead, he maintained that a broad-based reduction is vital for boosting morale across the wider workforce and addressing public skepticism regarding fiscal policies.

"As we make Pay As You Earn adjustments, let’s consider how we can help Kenyans restore trust in their government. The proposed 5% tax cut for all workers is not merely about putting more money in people’s pockets," Molenje stated.

Molenje emphasized that the proposed reduction is deeply tied to accountability and citizen engagement.

He noted that broader financial relief encourages compliance and fosters a sense of shared economic partnership between taxpayers and the state.

According to prior KBA projections, a universal tax adjustment of this scale would inject roughly Sh28 billion back into the pockets of workers annually, directly stimulating consumer spending and driving demand for local goods and services.

Furthermore, banking sector analysts estimate that this surge in consumer activity could generate up to Ksh42 billion in immediate economic output.

To put the impact into perspective, an employee earning a monthly salary of Sh50,000 could see an increase of approximately Sh2,244 in take-home pay each month translating to roughly Sh26,955 annually assuming the reduction applies uniformly across applicable tax bands and that other personal reliefs remain intact.

ThresholdsPresident Ruto’s administration, meanwhile, has focused its attention on shielding the most vulnerable wage earners from heavy taxation.

The government's approach has evolved over the past year, starting with an initial plan to exempt workers earning Sh30,000 or less.

This threshold was later raised to Sh32,333 during the Mashujaa Day celebrations held in Eldoret.

Treasury Cabinet Secretary John Mbadi addressed the legislative path forward, confirming that the state intends to present an amendment to Parliament in November to formalise the low earner exemption.

However, these changes remain subject to parliamentary approval before taking effect.Responding directly to the banking sector's proposal during the joint event, Mbadi expressed caution regarding an immediate, uniform tax cut.

He noted that while a broader reduction could be kept on the table for future financial reviews, the government's current fiscal space may not accommodate a blanket PAYE slash right away.

The current back-and-forth builds on a sustained campaign by the banking industry that dates back to December 2025. At the time, the sector urged the National Treasury to raise the minimum taxable income ceiling to Sh30,000 while simultaneously capping the highest PAYE rate at 30%.

Bankers argued that allowing households to retain a larger portion of their earnings is critical for sustaining small businesses and stabilizing local consumer markets.

Under Kenya's existing tax framework, resident employees are granted a personal relief of Sh2,400 per month, which effectively offsets PAYE on the first Sh24,000 of taxable income.

Any earnings exceeding that baseline are subjected to progressively higher tax bands.