The National Assembly’s Finance Committee has rejected a proposal in the Finance Bill, 2025, that sought to revise the Pay As You Earn (PAYE) tax bands and rates in a bid to ease the burden on low and middle-income earners.
The rejected amendment had proposed expanding the tax bands to 10%, 17.5%, 25%, 27.5%, and 30%, with the Treasury Cabinet Secretary empowered to adjust the bands by up to 10% every three years to factor in inflation.
It had been argued that this would make the tax system fairer, aligning it with global best practices.
“This is necessary because the bands are narrow and apply high rates to relatively low-income levels, which heavily burdens low and middle-income earners,” the proposal read in part.
The proposal further recommended raising the lowest tax band to Sh30,000, adjusting rates to 10%, 15%, 20%, 25%, and 28%, and increasing personal relief from Sh2,400 to Sh3,000 per month.
The current monthly tax bands as per the 2023 Finance Act are 10%, 15%, 25%, 30%, and 32.5%.
The minimum taxable income Sh24, 000 which is charged at 10%.
The Bill had also called for a review of statutory deductions, such as the NHIF, NSSF, and housing levy, towards a more progressive structure to enhance disposable income and boost economic activity.
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, hence it urges the National Treasury to fast-track this process,” the report stated.
The committee emphasised the need for a broader, data-driven review of the PAYE structure to ensure it is fair, equitable, and aligned with Kenya’s economic realities.
“This process should strike a balance between government revenue needs and the financial well-being of salaried individuals,” the committee added.
World Bank recently made several key recommendations to adjust the PAYE tax system in Kenya, aiming to make personal income tax more equitable and reduce the tax burden on low-income earners while increasing it for higher earners.
It proposed the introduction of a new 15% tax bracket for individuals earning between Sh24,000 and Sh32,000 per month
The current 30% tax bracket, which covers a wide income range, would be split into two: those earning between Sh32,000 and Sh167,000 would pay 25%, while those earning between Sh167,000 and Sh500,000 would pay 32.5%.
