NAIROBI, Kenya, May 28 — Kenya’s wealthiest individuals may soon be subject to a higher income tax rate under new reform proposals from the World Bank aimed at enhancing tax equity and boosting government revenues.
In its latest Public Finance Review for Kenya, the global lender recommends raising the top marginal personal income tax (PIT) rate from 35 to 38 percent for individuals earning more than Sh9.6 million annually.
The reforms also include a revised tax band structure designed to relieve pressure on low-income earners.
The proposed structure introduces progressive tax brackets starting at 25 percent, rising to 32.5 percent for incomes up to Sh6 million, 35 percent up to Sh9.6 million, and finally 38 percent for those above that threshold.
“This reform results in a decreased average tax wedge for all earners except those in the top decile,” the World Bank notes, highlighting that the top 10 percent of earners in Kenya earn seven times the national average and are well-positioned to absorb the hike.
The proposed changes aim to make Kenya’s tax system more progressive, ensuring the burden shifts upward while protecting low- and middle-income earners.
The Bank also recommends exempting workers earning less than half the national average wage from certain statutory payroll deductions such as the housing levy and contributions to the Social Health Insurance Fund (SHIF).
“An adjustment to the PIT structure to exempt low-wage earners from the housing levy would also improve progressivity with minimal revenue impact,” the report adds.
The World Bank warns that excessive payroll deductions are increasing the cost of formal employment, potentially discouraging job creation. It suggests that slightly higher contributions from top earners could offset revenue losses from exempting low-income workers.
While the proposal is aimed at fostering a fairer tax regime, the World Bank admits the new bracket may not be the final solution.
“This proposed bracket does not necessarily represent the optimal tax structure,” it cautions, calling for further analysis and refinement.
If implemented, the reforms could reshape Kenya’s tax landscape, promoting equity while sustaining revenue targets amid mounting fiscal pressure.
