Salaried workers earning below Sh50,000 monthly are set to enjoy income tax cuts of between Sh731 and Sh2,127 under proposed changes to the taxation brackets aimed at boosting the disposable income of low-earning workers.
Treasury Cabinet Secretary John Mbadi says his ministry has prepared a Tax laws (Amendment) Bill that will raise the threshold of untaxed income from Sh24,000 to Sh30,000 and have income falling between Sh30,000 and Sh50,000 taxed at 25 percent.
Income above Sh32,333 attract a tax rate of between 30 and 35 percent currently.
The easing of taxes comes as the State seeks to placate the electorate in the last full fiscal year before the General Election of August 2027.
President William Ruto’s administration has introduced a raft of new taxes and raised old ones since he was elected in August 2022.
The decisions proved unpopular with many Kenyans who believe he has betrayed his campaign pledge to champion the interests of “hustlers” -- those who struggle financially.
If the proposed changes go through, a worker earning Sh30,000 will see a Sh731.25 increase in their monthly net pay to Sh26,925 after statutory and Paye deductions.
Those earning Sh35,000 per month will see a Sh1,500 bump in net pay to Sh31,059.38, with their PAYE falling to Sh353.13 from Sh1,853.13.
Net pay for those on a gross salary of Sh50,000 will rise by Sh2,127.10 to Sh41,156.25 per month.
The pay relief has already factored higher statutory payments to the National Social Security Fund (NSSF), which kicks in at the end of this month.
Speaking at a public participation forum on the Budget on Monday, Mr Mbadi said that the amendment Bill will be presented to Parliament as soon as next week when lawmakers resume formal sittings after recess.
He was, however, silent on any changes to the income tax brackets for those earning above Sh50,000 whose rates range from 30 to 35 percent.
“If this law is passed, any Kenyan earning Sh30,000 and below should not be levied Paye. In the next bracket, for those who are earning between Sh30,000 and Sh50,000, we are reducing the tax rate to 25 percent,” said Mr Mbadi.
“Currently, for income above Sh33,000, you are paying 30 percent. We are trying to put some money in your pockets…and then we will look for other Kenyans out there who have not been paying taxes to pay their taxes.”
Official data shows that 1.36 million Kenyans earned below Sh50,000 in 2024, accounting for 42.2 percent of the 3.21 million formal sector employees.
The World Bank wants Kenya to exempt workers earning less than Sh32,333 from paying the housing tax and Social Health Insurance Fund (Shif) levy to boost the disposable income of low-earning workers.
The multilateral lender has termed the levies unpopular despite President Ruto backing the deductions to deliver affordable housing and universal health coverage.
The two levies have cut workers’ take-home pay while increasing staff costs as employers are required from June 2023 to match the housing levy of 1.5 percent of a worker’s monthly pay.
Thousands of workers have from September 2024 breached the legal requirement that demands they take home at least a third of their salary following a deduction of 2.75 percent of gross pay for universal health coverage.
The World Bank reckons that the low-income workers should be spared the two levies amid an outcry from a large section of the population who feel burdened by a raft of new taxes.
Employers reckon that thousands of workers will take home less than a third of their pay when pre-existing loan repayment obligations are accounted for, presenting a compliance headache for managers as firms risk legal suits.
This emerges in a period that has seen real wages fall for a fifth consecutive year, a sign of falling standards as the squeeze from living costs continues to bite.
The Employment Act of 2007 prohibits employers from deducting more than two-thirds of the basic pay of an employee to safeguard their rightful gains from employment.
Federation of Kenya Employers (FKE) says the State has remained tight-lipped on requests for advice on how to comply with the law in the aftermath of the multiple deductions.
Economists say that the current tax brackets place a heavy burden on lower-income earners.
Current income tax rates have a bottom tax bracket of 10 percent for all monthly income up to Sh24,000, but this is handed back to workers in form of relief of Sh2,400.
Income falling between Sh24,001 and Sh32,333 is levied tax rate of 25 percent, followed by a 30 percent rate for additional income up to Sh500,000.
The country’s top tax rates then kick in, levied at 32.5 percent for earnings of between Sh500,000 and Sh800,000, and 35 percent for all earnings above this threshold.
The most recent change to the individual tax brackets was done through the Finance Act 2023, which introduced the new top rates of 32.5 percent and 35 percent, but left the lower brackets unchanged.
Latest employment data from the Kenya National Bureau of Statistics (KNBS) statistical abstract shows that there were 1.36 million Kenyans earning below Sh50,000 and below in 2024, representing 42.2 percent of the 3.21 million formal sector employees.
The largest grouping comprises those earning between Sh50,000 and Sh99,000 at 1.46 million, followed by the Sh30,000-Sh49,999 segment at 1.04 million workers.
There were 104,206 workers taking home gross pay of between Sh20,000 and Sh29,999 per month, while 36,955 persons earned up to Sh19,999 per month.
The number of workers taking home more than Sh100,000 per month stood at 397,541 by the end of 2024, accounting for 12 percent of the total workforce.
Last year, the World Bank made a proposal seeking to have Kenya raise its top tax rate to 38 percent for those earning above Sh800,000 per month, and reduce the burden for lower-income earners by creating an additional tax band to eliminate the 30 percent tax segment.
Under this proposal, the government would maintain the tax-free pay threshold of Sh24,000, but cut the rate for those earning between this amount and Sh32,333 to 15 percent, from the current 25 percent.
Monthly pay falling between Sh32,334 and Sh166,667 would be taxed at a rate of 25 percent.
The multilateral lender further proposed that those earning between Sh166,668 and Sh500,000 pay 32.5 percent, with the workers on a range of Sh500,001 and Sh800,000 paying 35 percent.
