The Kenya Bankers Association has proposed a uniform 5% reduction in Pay As You Earn (PAYE) tax rates across all income bands, aiming to increase disposable income, stimulate consumption, and support employment and credit access for households and MSMEs.
The Kenya Bankers Association (KBA) has recommended a 5% reduction in Pay As You Earn (PAYE) tax rates across all income bands as a measure to restore purchasing power, stimulate economic activity, and strengthen government revenue.
The proposal comes amid rising cost-of-living pressures affecting Kenyan households and businesses, and ahead of expected increases in National Social Security Fund (NSSF) contributions, which will see both employers and employees contributing up to six percent of salaries by February 2027. KBA says these combined deductions could significantly burden workers, particularly those without private pension schemes.
“KBA welcomes the Government’s move to zero-rate PAYE for workers earning up to KSh 30,000 per month,” the association said in a statement. “This provides timely relief while addressing the cumulative impact of rising NSSF contributions.”
Key recommendations
- Uniform PAYE reduction: 5% across all existing bands to boost disposable income and household consumption.
- Cap on highest PAYE rate: 30%, aligned with the National Tax Policy approved in 2023, ensuring personal income tax does not exceed the corporate tax rate.
The bankers’ proposal aims to increase take-home pay, which in turn would improve borrowers’ repayment capacity and expand access to credit for households and Micro, Small and Medium Enterprises (MSMEs). KBA also highlighted the potential positive impact on entrepreneurship, investment, and ongoing programmes such as the NYOTA initiative.
Economic rationale
KBA argues that easing the PAYE burden will:
- Stimulate growth in productive sectors, including manufacturing and agriculture.
- Broaden the tax base, enabling the Government to collect revenue more efficiently through VAT, excise duty, and corporate income tax rather than relying heavily on labour taxation.
- Support job creation, particularly in labour-intensive industries.
- Reverse the economic slowdown that typically occurs in the lead-up to general elections, maintaining stronger revenue performance and business activity.
“Higher take-home pay translates into more disposable income, greater household consumption, and stronger domestic demand,” KBA said. “This is a practical approach to stimulating private sector growth, expanding employment, and driving sustainable economic recovery.”
Implications for businesses and households
The proposal could provide immediate relief for Kenyan households, particularly those with middle and lower incomes who face rising living costs and higher statutory contributions. By improving disposable income, the measure would help households manage expenses while enhancing access to credit for consumption and investment.
For businesses, especially MSMEs, the recommendation could lower operational pressures by increasing employee affordability and boosting demand for goods and services. The proposal also aligns with broader private sector goals of encouraging investment, fostering entrepreneurship, and sustaining double-digit credit growth in the medium term.
KBA commitment to economic growth
The Kenya Bankers Association reiterated its commitment to supporting both individuals and businesses while contributing to a more vibrant, inclusive, and resilient economy. Through initiatives such as PAYE reform, the banking sector aims to reinforce its role in enabling credit growth, financial inclusion, and economic recovery.
“KBA remains committed to policies that support income growth, job creation, and credit accessibility, contributing to a strong and inclusive economy in 2026 and beyond,” the association said.
The proposal adds to ongoing policy discussions on tax reform and economic recovery, with the banking industry advocating measures that balance fiscal responsibility with sustainable support for households and the private sector.
