Commercial banks and savings and credit cooperatives (SACCOs) have urged the National Treasury to ease payroll taxes to shore up workers’ disposable income, citing rising deductions and persistent inflation that have eroded real wages.
In separate submissions, the Kenya Bankers Association (KBA) and the Kenya Union of Savings and Credit Cooperatives (KUSCCO) called for reforms to the Pay As You Earn (PAYE) system, including raising the tax‑free salary threshold to KSh40,000 and capping the top rate at 30 per cent.
The lobby groups argue that the current tax structure has not kept pace with the cost of living, leaving employees struggling despite modest nominal pay rises. Official data shows Kenyan workers have endured five consecutive years of real pay losses up to 2024, as higher consumer prices and new statutory deductions for housing, health insurance and pensions offset wage adjustments.
According to the Kenya National Bureau of Statistics, the average real monthly wage fell from KSh62,256 in 2020 to KSh55,451 in 2024, a drop of KSh6,805. Additional deductions, including a 1.5 per cent housing levy and 2.75 per cent health cover contributions, alongside increased pension payments, have further squeezed take‑home pay.
KBA and KUSCCO say revising PAYE would boost disposable income, reduce loan defaults, and support borrowing and investment without overburdening lenders.
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They add that higher take‑home pay would stimulate spending in tourism, entertainment and hospitality, lifting VAT, excise and corporate tax collections. KUSCCO proposes widening tax bands to cushion low and middle‑income earners: exempt the first KSh40,000; tax KSh40,001- KSh60,000 at 20 per cent; the next KSh400,000 at 25 per cent; and cap the highest rate at 30 per cent for earnings above KSh500,000.
Currently, monthly income up to KSh24,000 is taxed at 10 per cent, offset by KSh2,400 in relief; KSh24,001-KSh32,333 at 25 per cent; the next KSh467,607 at 30 per cent; the following KSh300,000 at 32.5 per cent; and any income above KSh800,000 at 35 per cent.
SACCOs have recently reported rising dormant accounts and loan defaults as members grapple with shrinking incomes, underscoring the urgency of reform.
“Widening of the tax bands will make the current tax bands more progressive to cushion low‑income earners, in the wake of rising cost of living and inflation rates,” KUSCCO said in its submission, framing the proposals as a pragmatic path to stabilise households and revive demand across the economy.
By Masaki Enock
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