Millions of salaried Kenyans could see more money in their payslips under proposed changes to the Pay As You Earn (PAYE) system, with workers earning above Sh32,333 set to gain an additional Sh2,083 every month.
The National Treasury plans to restructure personal income tax bands by making the first Sh32,333 of monthly earnings tax-free for all salaried employees, while scrapping the existing Sh2,400 monthly personal relief.
The proposal means the benefit will not be restricted to low-income workers earning below the new tax-free threshold. Employees earning higher salaries will also receive the same monthly tax saving under the revised structure.
Treasury Cabinet Secretary John Mbadi told Business Daily that the government had approved the proposal for submission to Parliament, with the changes expected to be tabled the following week.
Under the current system, the first Sh24,000 of monthly taxable income attracts a 10 per cent tax rate, while the next Sh8,333 is taxed at 25 per cent. Eligible resident workers then receive personal relief of Sh2,400, reducing their final PAYE liability.
The proposed changes would eliminate both lower tax bands and replace them with a zero-rated band covering the first Sh32,333 of earnings. Personal relief would consequently be withdrawn across all salary levels.
Workers earning Sh50,000 monthly would see their take-home pay rise to Sh41,112 from the current Sh39,029, according to Treasury figures reported.
Those earning Sh100,000 would take home Sh72,574, up from Sh70,441 under the existing tax structure.
The higher tax rates would remain in place on income above the new threshold, with graduated rates of 30 per cent, 32.5 per cent and 35 per cent applying to higher earnings.
The changes are expected to expand the number of salaried workers exempt from PAYE by 362,846, bringing the total number of workers paying no payroll tax to approximately 1.69 million.
The number of employees continuing to pay PAYE would fall to about 1.77 million out of the country's 3.46 million salaried workers.
For the government, however, the changes come with a significant revenue cost. Treasury estimates the monthly loss in payroll tax collections at approximately Sh3.7 billion, equivalent to Sh44.4 billion annually.
The government expects the additional disposable income to stimulate household spending, increase demand for goods and services and support business activity.
The proposed relief also comes as households continue to contend with higher living expenses and statutory deductions introduced in recent years.
Importantly, the PAYE adjustment would not automatically eliminate other deductions from employees' salaries, including National Social Security Fund contributions, Social Health Insurance Fund contributions and the Affordable Housing Levy.
The proposals must still be considered and approved by Parliament before employers can implement the revised tax calculations.
If passed, the changes would represent a significant restructuring of Kenya's personal income tax system, extending monthly PAYE relief to workers across the salary scale rather than concentrating the benefit on the lowest-paid employees.
