The banking industry is lobbying the government to cut pay-as-you-earn (Paye) tax rates by five percentage points across all income bands, arguing that the move would restore workers’ purchasing power, support economic growth and strengthen tax revenues.
In a proposal submitted to the Treasury, the Kenya Bankers Association (KBA) said the uniform reduction should be accompanied by a cap on the top Paye rate at 30 percent, in line with the National Tax Policy approved in 2023, which states that personal income tax rates should not exceed the corporate tax rate.
This comes a day after Treasury Cabinet Secretary John Mbadi revealed a plan to zero-rate Paye for workers earning up to Sh30,000 a month, saying it would provide timely relief as households grapple with rising living costs.
Bankers, however, argued that limiting relief to low-income earners would not go far enough to address the growing tax burden faced by workers and employers across the board.
The lobby group pointed to the ongoing phased increase in National Social Security Fund (NSSF) contributions, which will see employers and employees contribute up to six percent of pay by February 2026.
It said the cumulative effect of higher statutory deductions risks squeezing disposable incomes, particularly for workers and firms without occupational pension schemes.
“Without complementary tax relief measures through Paye for all workers, the burden on both employees and employers will continue to rise,” the bankers said.
Earnings of up to Sh10,000 a month are subject to 10 percent income tax, while the next Sh8,333 per month, or Sh100,000 annually, is subject to 25 percent Paye. Workers earning up to Sh467,000 a month pay 30 percent; those earning up to 767,000 pay 32.5 percent and the rest pay 35 percent.
Under the proposal, the five percent cut would apply to all existing Paye bands, with the highest rate capped at 30 percent.
The industry said this approach would increase disposable income, boost household consumption and stimulate growth in productive sectors such as manufacturing and agriculture.
Banks also argued that easing the tax burden on labour would broaden the tax base and deliver more resilient government revenues over time, through higher collections from value-added tax, excise duty and corporate income tax, rather than continued heavy reliance on taxing wages.
Bankers further argued that the tax cut could help reinvigorate economic activity ahead of the next general election, a period that has historically been marked by business slowdowns, weaker investment and softer revenue performance.
