Payslips blow as Mbadi holds back tax cut plan

The Treasury Secretary said he would bring the amendments to the Income Tax Act before to the Income Tax Act before MPs for approval as they returned from recess in February.

“We have agreed with the President (William Ruto) that low-income earners in this country should be given a reprieve. His Excellency has directed me to take a proposal to Parliament, and I am not even waiting for the Finance Bill 2026 to come, so I am taking the Tax Laws (Amendment) Bill 2026 to Parliament to approve so that any Kenyan earning Sh30,000 and below will not have to be subjected to PAYE,” the Cabinet Secretary said at the time.

But in a U-turn, Mr Mbadi on Monday said that a special Tax Laws (Amendment) Bill 2026 that would have facilitated the tax cuts had been shelved owing to its proximity to the Finance Bill 2026, which is required to be tabled in Parliament by April 30, 2026, and passed by the end of June.

“The National Treasury had prepared some tax amendment proposals aimed at broadening the tax base and sealing leakages with an estimated yield of Sh57 billion. We, however, had to set this aside because we just have a few weeks to Finance Bill 2026, and so bringing some tax law adjustments at this time would be too close to the Finance Bill,” Mr Mbadi told the National Assembly’s Budget and Appropriations Committee on Tuesday.

“We would rather review all this and consolidate and bring them together as opposed to having two separate Bills.”

This U-turn by the government means that salaried workers earning below Sh50,000 will now wait longer for adjustment of PAYE bands to boost their disposable incomes, even as the country’s inflation climbed to 4.4 percent in March, reversing the slight easing recorded in February and signalling renewed pressure on household budgets.

Data from the Kenya National Bureau of Statistics (KNBS) shows that the annual inflation rose from 4.3 percent in February, mainly pushed by increases in food prices.

Mr Mbadi in February said that his ministry had prepared a Tax Laws (Amendment) Bill that would raise the threshold of untaxed income from Sh24,000 to Sh30,000, while income falling between Sh30,000 and Sh50,000 would be taxed at 25 percent.

Read: How payslips will change in Mbadi’s tax cuts plan

Under the promised changes, workers earning Sh30,000 would see a Sh731.25 increase in their monthly net pay to Sh26,925—after statutory and PAYE deductions. Those earning Sh35,000 per month would see a Sh1,500 jump in net pay to Sh31,059.38, with their PAYE falling to Sh353.13 from Sh1,853.13.

According to the now delayed plans by the Treasury, the net pay for those on a gross salary of Sh50,000 would have risen by Sh2,127.10 to Sh41,156.25 per month.

The latest employment data from the Kenya National Bureau of Statistics (KNBS) shows that 1.36 million Kenyans were earning Sh50,000 and below in 2024, representing 42.2 percent of the 3.21 million individuals in formal employment in both the public and private sectors.

The KNBS data shows that some 1.46 million individuals earn between Sh50,000 and 99,000 and form the bulk of the workers in formal employment in both private and public sectors. Some 1.04 million workers earn between Sh30,000 and Sh49,999, while 104,206 workers are on gross pay of between Sh20,000 and Sh29,999 per month.

The data shows that 36,955 workers earned up to Sh19,999 per month. The number of workers earning more than Sh100,000 per month stood at 397,541 by the end of 2024, accounting for 12 percent of the total workforce.

The government has in recent months come under intense pressure to review the recent statutory deductions, specifically the National Social Security Fund (NSSF), the Social Health Insurance Fund (SHIF), and the Affordable Housing Levy (AHL).

The Kenya Bankers Association proposed a uniform 5.0 percent reduction in PAYE rates across all existing tax bands.

Payslip deductions towards the NSSF, for example, have jumped sharply from Sh200 per month to the current range of between Sh540 and Sh6,480.