Cabinet Secretary John Mbadi oversees the second disbursement of the National Youth Opportunities Towards Advancement (Nyota) Fund at Jomo Kenyatta International Stadium in Mamboleo, Kisumu on July 10, 2026.Â
Kenya's income tax burden is increasingly shifting from salaried workers to companies, with businesses generating more government revenue as company profits rebound while the formal employment base maintains a shrinking trajectory.
Fresh figures from the Kenya Revenue Authority (KRA) show corporation tax collections rose by Sh42.2 billion to Sh347.1 billion in the financial year ended June 2026, surpassing the Sh37.8 billion increase delivered through Pay As You Earn (PAYE).
The stronger corporate contribution comes as the pool of salaried workers continues to narrow. KRA said formal employment accounted for just 15.3 percent of total employment in 2025, down from 15.5 percent in 2024 and 15.7 percent in 2022.
"The slowdown in PAYE performance is attributable to the declining share of formal employment, which fell from 15.7 percent in 2022 to 15.5 percent in 2024 and further to 15.3 percent in 2025," the authority said.
Against that backdrop, corporation tax grew by 13.9 percent, more than double PAYE's 6.7 percent expansion, underscoring a structural shift in the government's revenue engine from workers' pay to corporate earnings.
The latest performance marks the fastest corporation tax growth in three years, accelerating from 9.8 percent in FY2024/25 and 4.6 percent in FY2023/24 as corporate profitability strengthened across key sectors.
KRA attributed the rebound to stronger corporate earnings and improved tax compliance, particularly through higher instalment tax payments by some of the country's largest industries.
"Corporation tax growth was supported by improved profitability and stronger instalment remittances from the ICT, manufacturing, transportation, energy and wholesale sectors," KRA said.
The five industries accounted for nearly half [49.4 percent] of all corporation tax collected and recorded an average 25 percent increase in instalment tax remittances, highlighting the extent to which large formal businesses are driving revenue growth.
Banks also strengthened the government's revenues, with their corporation tax payments rising 11.1 percent to generate 26.1 percent of collections.
PAYE collections rose to Sh598.8 billion from Sh561 billion, improving from 3.3 percent growth a year earlier. However, the expansion remained below the average 8.5 percent growth recorded in FY2022/23 and FY2023/24.
The slower growth suggests the government is approaching the limits of relying on existing workers to drive extra tax revenue after years of higher statutory deductions and income tax changes that have squeezed household budgets.
The mounting pressure has already prompted the government to promise relief for low-income earners. In February, Treasury Cabinet Secretary John Mbadi announced plans to cut the monthly PAYE by between Sh731 and Sh2,127 for workers earning up to Sh50,000.
"We have agreed with the President that low-income earners in this country should be given a reprieve," Mr Mbadi said when announcing the proposed reforms.
The Treasury later dropped the standalone Tax Laws (Amendment) Bill 2026 that was expected to introduce the changes, saying it was too close to the Finance Bill process. The promised PAYE relief was also omitted from the Finance Bill 2026 approved by Parliament last week.
Lobbies representing business groups, accountants, bankers and lawyers also urged Parliament to overhaul PAYE tax bands during public hearings on the Finance Bill in May.
The Kenya Private Sector Alliance, for example, proposed reducing the top PAYE rate to 30 percent from 35 percent and increasing monthly personal relief to Sh3,000, arguing the changes would leave Sh28.1 billion in workers' pockets each year.
Kepsa said the additional disposable income could generate Sh42 billion in economic activity and support up to 36,000 jobs by boosting household spending.
The National Assembly's Finance and National Planning Committee also acknowledged the growing burden on salaried workers, citing higher deductions for the Social Health Insurance Fund and the Affordable Housing Levy.
"The committee recommends that the National Treasury relooks at overhauling all the tax bands. With the increased contributions to the Social Health Insurance Fund and the Affordable Housing Levy, this has increased the burden on salaried employees," committee chairman Kuria Kimani said in the panel's report.
The committee stopped short of proposing new tax bands, saying the Treasury was better placed to analyse the fiscal implications before undertaking a comprehensive review.
Mr Mbadi reaffirmed the government's commitment after presenting the Budget Statement in June, saying the necessary data analysis had been completed and the promised reforms would still be implemented.
Even as debate over PAYE continues, corporate Kenya has emerged as the government's fastest-growing revenue engine.
Overall, corporation tax collections have risen by Sh83.2 billion over the past three years, from Sh263.8 billion in FY2022/23 to Sh347.1 billion last year.
Overall, KRA collected Sh2.844 trillion during the year, up Sh272 billion from Sh2.572 trillion in FY2024/25, representing a 10.6 percent increase, the second-fastest annual revenue growth in the past four financial years.
"Despite the mixed economic environment in FY2025/2026, taxpayers exhibited resilience and voluntarily paid their taxes to support the country's economic transformation," KRA Commissioner General Adan Mohamed wrote in a statement on Friday.
The data showed customs revenue grew 12.4 percent to Sh988.8 billion after exceeding its annual target, while domestic VAT rose 8.5 percent as KRA intensified technology-driven compliance.
Excise tax on betting services climbed 24.9 percent, while Significant Economic Presence Tax, formerly Digital Service Tax, doubled after the Finance Act 2025 expanded its scope.
