Banks Propose 5% PAYE Tax Cut to Boost Workers’ Income and Economic Growth

Kenya’s banking industry has proposed a five per cent reduction in Pay As You Earn (PAYE) tax rates across all tax bands, saying the move will help restore workers’ purchasing power, stimulate economic growth and strengthen government revenue.

In a statement issued on Wednesday, the Kenya Bankers Association (KBA) welcomed the government’s proposal to zero-rate PAYE for employees earning up to Sh30,000 per month, saying it offers timely relief as households struggle with the rising cost of living.

The association said the tax relief will also help cushion workers and employers from the impact of increasing National Social Security Fund (NSSF) contributions, which are set to rise gradually to six per cent of salary by February 2027.

According to KBA, the combined effect of higher NSSF deductions and existing taxes places a heavy burden on workers and employers, especially those without pension schemes, making additional PAYE relief necessary.

The bankers further recommended that the highest PAYE rate be capped at 30 per cent, in line with the National Tax Policy approved in 2023, which states that personal income tax should not be higher than the corporate tax rate.

KBA said a uniform five per cent reduction across all PAYE bands would increase workers’ take-home pay, boost household spending and support growth in key sectors such as manufacturing and agriculture.

The association noted that easing the tax burden on workers would also help create jobs, improve loan repayment capacity and expand access to credit for households and micro, small and medium enterprises (MSMEs). This, they said, would support entrepreneurship, investment and government initiatives such as the NYOTA programme.

“The proposed five per cent PAYE reduction will help reinvigorate economic growth, create jobs in both the formal and informal sectors, and reduce business slowdowns that often occur ahead of general elections,” the statement said.

KBA added that higher disposable incomes would allow the government to collect more revenue through VAT, excise duty and corporate taxes, rather than relying heavily on taxing labour.

The banking industry reaffirmed its commitment to supporting individuals and businesses, saying it aims to drive double-digit private sector credit growth from 2026 onwards, contributing to a stronger, more inclusive and resilient economy.