Kenya Government plans to revise PAYE capping

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Kenya Government is actively considering and has announced plans to revise the PAYE (Pay As You Earn) tax structure, specifically focusing on increasing the tax-free threshold (often referred to as the "PAYE cap" or minimum taxable income) from KSh 24,000 to KSh 30,000 per month. 

This would effectively exempt monthly earnings up to KSh 30,000 from income tax, providing relief to low-income earners amid high living costs, inflation, and multiple statutory deductions (e.g., SHIF at 2.75%, Affordable Housing Levy at 1.5%, and NSSF).

Key Details from Recent Announcements (as of February 2026)

Treasury CS John Mbadi has publicly stated that the government, with approval from President William Ruto, plans to implement this change. It aims to ease the financial burden on low- and middle-income salaried workers, who have faced shrinking disposable income due to rising taxes and deductions.

The proposal aligns with calls from stakeholders like the Kenya Bankers Association (KBA), which submitted recommendations ahead of the Finance Bill 2026. 

KBA's proposal includes:

1. Income below KSh 30,000 → Exempt from PAYE (0%).

2. KSh 30,001–50,000 → 15%.

3. KSh 50,001–100,000 → 20%.

4. KSh 100,001–400,000 → 25%.

5. Above KSh 400,000 → Capped at 30% (down from the current top rates of 32.5% and 35% in higher bands).

This is intended to boost disposable income, stimulate consumption, savings, investment, and ultimately widen the tax base for long-term revenue gains.

The change is expected to be part of the Finance Bill 2026 (draft typically by April 2026, enactment by June/July), following public consultations and parliamentary approval. Similar PAYE relief ideas were shelved in prior years (e.g., 2025) due to revenue shortfalls at KRA, but recent signals indicate momentum now.

Current PAYE Structure (for Reference, per Finance Act 2023/ ongoing)

1. First KSh 24,000 → 10%.

2. Next KSh 8,333 → 25%.

3. Next bands up to higher rates (30%, 32.5%, 35% for very high earners).

Personal relief of KSh 2,400/month applies after gross tax calculation.

Broader Context and Reactions

This comes amid ongoing pressure for tax reforms, including hints of potential VAT reductions or other cuts in the 2026 Finance Bill.

Some people have welcomed the relief for low earners, while others express skepticism (e.g., concerns it could lead to higher taxes on middle/upper earners or is timed for political gains ahead of elections).

No final enactment yet as it's a proposed/ planned revision, subject to parliamentary debate and potential adjustments.

If approved, this could significantly increase take-home pay for millions earning around or below KSh 30,000–50,000 monthly. 

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