Powerful PAYE Proposal Could Boost Kenyans’ Take-Home Pay Significantly

PAYE proposal reforms announced by the National Treasury could significantly increase take-home pay for thousands of Kenyan workers if approved by Parliament, delivering targeted relief to low- and lower middle-income earners struggling with rising living costs. Treasury Cabinet Secretary John Mbadi has unveiled plans to exempt all employed Kenyans earning Sh30,000 or less from paying Pay As You Earn (PAYE) tax. The proposal will be included in the upcoming Tax Laws Amendment Bill ahead of the Finance Bill 2026.

If passed, the PAYE proposal would eliminate income tax for workers at the lower end of the formal employment scale, effectively increasing disposable income without raising gross salaries. Currently, a worker earning about Sh30,000 per month pays roughly Sh731 in PAYE. Under the proposed changes, that deduction would be removed entirely. This translates into approximately Sh8,700 in annual savings — funds that could help cover rent, transport, or food expenses in a high-cost environment.

For workers earning between Sh24,000 and Sh30,000, the immediate gain would be modest in absolute terms but meaningful at the household level. In tight monthly budgets, even a few hundred shillings can materially improve financial stability.

PAYE Proposal Offers Partial Relief to Middle-Income Earners

The PAYE proposal also outlines relief for workers earning above Sh30,000 but below Sh50,000, though they would not receive a full exemption. For this bracket, the Treasury plans to reduce the PAYE rate from 30 percent to 25 percent, softening the tax burden while preserving revenue from higher earners. A worker earning Sh35,000 per month, who currently pays about Sh1,800 in PAYE, could see that figure drop to roughly Sh1,700, saving around Sh100 per month or Sh1,200 annually. Workers earning Sh50,000 would also benefit from the rate adjustment, although the proportional gain would be smaller relative to gross income.

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The proposed reforms reflect growing pressure on policymakers to ease the tax burden amid elevated food prices, transport costs, and household expenses. Over the past two years, fiscal consolidation efforts have expanded the tax base, drawing criticism from workers who argue that stagnant wages have not kept pace with inflation.

Economists note that exempting lower-income earners from PAYE could stimulate consumer spending by increasing disposable income at the base of the income pyramid. However, they caution that the Treasury will need to balance relief measures against revenue targets and debt-servicing obligations. Parliamentary approval will ultimately determine whether the PAYE proposal becomes law. Lawmakers are expected to scrutinize its fiscal impact alongside broader tax amendments in the 2026 budget cycle. If enacted, the changes would represent one of the most direct interventions in personal income taxation in recent years, reshaping payroll deductions for thousands of formally employed Kenyans.