The National Assembly’s Finance Committee has shot down a proposal in the Finance Bill 2025 that sought to revise the Pay As You Earn (PAYE) tax bands, in a move that would have eased the tax burden on low and middle-income earners.
The rejected amendments aimed to expand and restructure the tax bands to more progressive rates — 10%, 17.5%, 25%, 27.5%, and 30% — and give the Treasury Cabinet Secretary powers to adjust them by up to 10% every three years to accommodate inflation.
The proposal also suggested raising the minimum taxable income to Sh30,000 per month and revising the personal relief from Sh2,400 to Sh3,000. Proponents argued that Kenya’s current tax structure applies high rates to relatively low incomes, placing a disproportionate burden on the majority of salaried Kenyans.
“This is necessary because the bands are narrow and apply high rates to relatively low-income levels,” read part of the Finance Bill proposal.
Kenya’s current PAYE structure — as per the Finance Act 2023 — includes monthly bands of 10%, 15%, 25%, 30%, and 32.5%, with a minimum taxable income set at Sh24,000.
The Finance Bill 2025 also called for the restructuring of statutory deductions such as NHIF, NSSF, and the Housing Levy to create a more progressive system and enhance disposable income.
However, the committee declined to approve the changes, citing an ongoing review by the National Treasury.
“The committee observed that the National Treasury has expressed intent to review the tax bands. Therefore, it urges the Treasury to fast-track this process,” the committee’s report stated.
The committee further stressed the need for a broader, data-driven overhaul of the PAYE system, saying any reforms must strike a balance between raising government revenue and protecting the financial well-being of salaried individuals.
The World Bank has also weighed in on the matter, recommending adjustments to make the system more equitable. Its proposals include a 15% tax bracket for those earning between Sh24,000 and Sh32,000, while splitting the existing 30% bracket to differentiate between mid- and high-income earners.
According to the World Bank, individuals earning between Sh32,000 and Sh167,000 would pay 25%, while those earning between Sh167,000 and Sh500,000 would pay 32.5%.