Why banks are pushing for lower PAYE
Business
By
Macharia Kamau
| Dec 22, 2025
The banking industry has proposed a downward review of pay as you earn (PAYE) tax bands to raise the minimum taxable personal income from the current Sh24,000 to Sh30,000, with a maximum PAYE band at 30 per cent.
The industry said this would boost disposable income, empower workers, support Micro, Small, and Medium Enterprises (MSMEs) and increase revenue collection by the government through increased consumption and investment
Under the proposal, the Kenya Bankers Association (KBA) has suggested that income below Sh30,000 be exempt from Paye and income between Sh30,001 and Sh50,000 be taxed at 15 per cent.
It further proposes that income between Sh50,001 and Sh100,000 be taxed at 20 per cent, income between Sh100,001 and Sh400,000 at 25 percent and any income above Sh400,000 at 30 per cent.
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“The purchasing power of salaried Kenyans has fallen significantly in recent years. Adjusting Paye bands is a practical step to restore household income, stimulate spending, and support businesses,” said KBA Chief Executive Raimond Molenje, adding that when workers take home more pay, they spend more, save more, and invest more, strengthening the economy, improving loan repayment, and ultimately growing government revenue.
The Association made the proposals against the National Treasury’s invitation for comments from Kenyans on tax policies to inform the Finance Bill 2026. It argued that lowering the tax bands will widen the tax base, increase revenue to the government, while encouraging savings and investment in businesses.
“A salaried worker earning Sh 60,000 per month in Nairobi currently faces several deductions that significantly reduce their pay after tax. A slight PAYE adjustment that adds even Sh5,000 to their net income can translate into higher spending on food, rent, transport or school fees,” said KBA.
“The majority of these sectors are driven mainly by local businesses and MSMEs that can be strengthened further to enable individuals to venture into businesses and improve their financial health.”
Currently, salaried Kenyans pay on their income at 10 per cent on the first Sh24,000, 25 per cent on the next Sh8,333, 30 per cent on the next Sh467,667, 32.5 per cent on the next Sh300,000 and 35 per cent on income above Sh800,000.
Additional deductions, including the 1.5 per cent Affordable Housing Levy, 2.75 per cent Social Health Insurance Fund contribution, and rising NSSF contributions, have significantly reduced real wages, which fell by 10.7 per cent, according to the Parliamentary Budget Office Report 2025.
The proposal also recommends easing Withholding Tax and withholding VAT remittance timelines, allowing remittance by the fifth day of the month following deduction. KBA noted that this measure would reduce compliance costs, improve cash flow for businesses, and encourage the formalisation and adoption of digital payments
“From the banking industry’s view, Paye reform will not be a give-away. It will be a direct signal to Kenyans to be fully involved in the productive economy (agri-business and manufacturing) as investors and help grow the economy,” said the bankers’ lobby.
“When workers take home more pay, they spend more, start businesses, save, and invest. This helps families, businesses, banks, and the government. A better payslip today helps build and expand a stronger and more reliable tax base for tomorrow.”