Kenya Treasury Drops PAYE Relief Plan, Citing Sh35 Billion Revenue Shortfall and Wider Deficit

Kenya's National Treasury dropped plans to introduce PAYE relief in the Finance Bill 2026, citing an estimated Sh35 billion revenue shortfall that would have widened the budget deficit. The Kenya Bankers Association argued that relief limited to low-income earners would have limited impact on economic growth and urged a uniform 5 percent reduction across all income brackets while capping the top tax rate at 30 percent.

KBA Chief Executive Officer Raimond Molenje said applying relief only to lower earners would create a gap in revenue collection because that relief would not spur economic activities the way a 5 percent PAYE cut across income tax brackets would.

National Treasury Cabinet Secretary John Mbadi had proposed to exempt workers earning up to Sh30,000 from PAYE and grant a 5 percent relief to those earning up to Sh50,000. The Kenya Bankers Association estimated that a uniform 5 percent PAYE reduction across all brackets would inject approximately Sh28 billion into the economy annually and unlock up to Sh210 billion in economic activity.

The association said increased household disposable income would boost demand for goods and services, supporting businesses, job creation and government revenues through higher VAT collections and economic expansion.

The proposed tax relief was initially championed by William Ruto and the Treasury as part of measures aimed at easing the cost of living and boosting household spending. The decision to drop the relief dealt a blow to thousands of workers who had anticipated lower tax deductions amid rising living costs and increased statutory contributions.