The Kenya Bankers Association (KBA) has proposed a major overhaul of Kenya's PAYE system that would greatly change income taxation and ease pressure on salaried Kenyans.

🇰🇪 Breaking It Down

In its proposal to the Finance Bill 2026,  KBA is pushing for an increase of tax relief for employed Kenyans from the current Ksh 2,400 to Ksh 3,000, a move that, if adopted, will add to what salaried Kenyans take home every month and reduce tax deduction.

The association is also proposing a five-band income tax structure to raise the tax-free threshold. In the proposal, KBA recommends setting the first tax band at 10 per cent for monthly income up to Ksh30,000, up from the current Ksh24,000.

KBA further proposes progressively higher brackets, with a top marginal rate of 30 per cent for incomes above Ksh800,000.

📌 What You Need to Know

The association further argues that the current PAYE structure is overly compressed and places a disproportionate burden on middle-income earners, who are quickly pushed into higher tax brackets, claiming that this contributed to declining real incomes at a time when households are also facing higher statutory deductions and elevated living costs.

Alongside KBA's submission, the Institute of Certified Public Accountants of Kenya (ICPAK) has proposed more aggressive changes to the income tax regime.

ICPAK recommends reducing the top PAYE rate from 35 to 28 per cent, arguing that Kenya’s current top marginal rate is relatively high compared to corporate taxation levels and may discourage productivity and formal employment.

On the other hand, Deloitte East Africa has also tabled a separate PAYE reform proposal, recommending a more graduated tax structure designed to smooth transitions between income brackets.

Under its recommendation, income would be taxed at 10 per cent for the first Ksh 30,000, 15 per cent for the next Ksh 30,000, 20 per cent for the next Ksh 30,000, and 25 per cent for income up to Ksh 410,000, before a top rate of 30 per cent is applied to earnings above Ksh 500,000.

It is worth noting that the Treasury had earlier proposed major tax cuts for salaried Kenyans taking home not more than Ksh 30,000 monthly, promising to scrap PAYE completely for them.

📰 Source: Kenyans.co.ke