NAIROBI, Kenya, Feb 5 – Kenya’s banking sector has proposed a 5 percent reduction in Pay As You Earn (PAYE) taxes across all income bands, coupled with a cap of 30 percent for the highest rate, as a measure to restore household purchasing power and stimulate economic activity.
The proposal comes amid rising cost-of-living pressures and a planned increase in National Social Security Fund (NSSF) contributions, which will require both employers and employees to contribute up to six percent of pay by February 2027.
“The cumulative effect of these deductions presents a significant burden for workers and employers without pension schemes, highlighting the need for complementary tax relief measures through PAYE for all workers,” said the Kenya Bankers Association (KBA) in a statement.
The banking sector argues that a uniform 5 percent reduction in PAYE rates across all bands would boost disposable income, increase household consumption, and stimulate growth in productive sectors such as manufacturing and agriculture.
“We welcome the Government’s proposal to zero-rate PAYE for workers earning up to KES 30,000 per month, as it provides timely relief in response to rising cost-of-living pressures facing Kenyan households and businesses.”
The banks also recommend that the highest PAYE rate be capped at 30 percent, in line with the National Tax Policy approved in 2023, which stipulates that personal income tax rates should not exceed the corporate tax rate.
According to KBA, the measure would broaden the tax base, strengthen government revenue performance through VAT, excise duty, and corporate income taxes, and support job creation especially in sectors where employment growth is closely linked to domestic demand and labour affordability.
The bankers emphasized that the proposed five percent PAYE reduction would help reinvigorate economic growth, generate both formal and informal employment across sectors, and reverse the cycle of business slowdowns typically observed in the build-up to general elections.
As of February 1, 2026, the NSSF implemented its latest adjustment to pension contributions, expanding the earnings bands used to calculate deductions.
Under the new structure, Tier I’s lower earnings limit rose to Sh9,000 from Sh8,000, while Tier II’s upper earnings limit increased to Sh108,000 from Sh72,000.
Although the contribution rate remains 6 percent for both employees and employers, the expanded limits mean that middle- and higher-income earners now face higher monthly NSSF deductions, which reduce net pay even before income tax and other statutory contributions are applied.
Reports indicate that employees earning above Sh100,000 now contribute up to Sh6,480 per month, up from Sh4,320 previously, while workers in other income brackets see proportionately higher deductions further tightening household budgets.
