The National Treasury of Kenya plans to introduce amendments to the pay-as-you-earn (PAYE) bands, extending tax relief to salaried workers earning above Sh32,333. According to Cabinet Secretary John Mbadi, the proposed changes aim to provide relief beyond low-income workers. The amendments will be tabled in Parliament next week. The changes will see all salaried workers benefit from preferential tax-free treatment of their first Sh32,333 in gross earnings.
Currently, earnings between Sh24,001 and Sh32,333 are subject to 25 percent tax, while the first batch of Sh24,000 in pay is taxed at 10 percent, offset by the Sh2,400 monthly personal relief. Under the new proposals, both the 10 percent and 25 percent bands will be eliminated, along with the personal relief. This will lift the first tax band to earnings above Sh32,333. As a result, salaried workers above Sh32,333 will see an increase in take-home pay.
The take-home pay for persons earning Sh50,000 will rise to Sh41,112 from Sh39,029 currently, while net pay for earners of Sh100,000 will jump to Sh72,574 from Sh70,441. The National Treasury expects to lose at least Sh3.7 billion in payroll taxes a month but anticipates the loss to serve as a stimulus in the economy, increasing households' disposable income and resulting in higher consumption and job creation.
An estimated 362,846 more salaried workers will be exempted from paying payroll taxes, adding to the current 1.32 million workers who gross Sh24,000 or less. This will see the number of salaried workers not paying payroll taxes rise to 1.69 million, while the remaining number of taxpayers will be 1.77 million. Each of the 1.77 million workers paying payroll taxes will see their net take-home pay bumped up by Sh2,083.
The passing of a blanket relief to take-home pay across the board, touching on all 3.46 million salaried workers, is set to be a welcome move to stakeholders, including civil society groups and lobbies. Estimates by the Kenya Bankers Association (KBA) show a five percent PAYE cut would expand the economy, create jobs, and increase tax revenues indirectly.
A uniform five percent reduction in PAYE across all income bands is expected to release Sh28.1 billion into the economy annually, generating Sh42 billion in immediate GDP output and supporting over 36,000 jobs. The higher take-home pay is expected to result in a stronger economy, increasing household spending, raising the demand for goods and services, and boosting SME growth and manufacturing expansion.
The amendments to pay as you earn are set for tabling in the National Assembly next week. The easing of payroll taxes comes as the State seeks to placate the electorate with just months to the August 2027 General Elections. President William Ruto's administration introduced a raft of new taxes while raising rates on old taxes after the August 2022 elections.
Key points
- Salaried workers earning above Sh32,333 will see an increase in take-home pay.
- The National Treasury expects to lose at least Sh3.7 billion in payroll taxes a month.
- An estimated 362,846 more salaried workers will be exempted from paying payroll taxes.
