Mbadi Reveals How 362,846 More Kenyans Could Stop Paying PAYE Under Ruto’s New Tax Plan

National Treasury Cabinet Secretary John Mbadi has revealed that an additional 362,846 Kenyans in formal employment could be exempted from Pay As You Earn (PAYE) tax under a proposed government plan to raise the monthly income tax exemption threshold to Sh32,333.

The proposal, announced following a directive by President William Ruto, seeks to reduce the tax burden on lower-income salaried workers as the government responds to the rising cost of living.

According to Mbadi, the number of formally employed Kenyans exempted from PAYE would increase from 1.329 million to approximately 1.692 million if the proposed changes are approved.

The Treasury CS said about 1.778 million workers would continue paying PAYE out of the estimated 3.468 million Kenyans in formal employment.

Mbadi explained that the government had considered the country’s economic situation and believed the improving economic conditions should translate into some financial relief for workers who have been shouldering the tax burden.

He said the government had introduced measures to stabilise the economy when it faced difficulties in 2022. With signs of recovery emerging, the administration now wants some of the benefits to reach ordinary salaried Kenyans.

Under the proposed changes, employees earning up to Sh32,333 per month would no longer pay PAYE, up from the current income tax exemption threshold of Sh24,000.

The adjustment would particularly benefit workers earning between Sh24,000 and Sh32,333, who currently fall within the 25 per cent tax band, according to Mbadi.

The Treasury CS said the proposed relief would make a noticeable difference to employees in this income bracket, many of whom face pressure from household expenses and other financial obligations.

Mbadi estimated that an affected employee would gain an additional Sh2,083 in monthly take-home pay once the proposal takes effect.

He explained that while higher-income earners might not notice a significant difference, the additional money could provide meaningful relief to workers earning modest salaries.

The government hopes the proposed changes will ease financial pressure on lower-income households while maintaining the country’s ability to collect revenue from taxpayers.

However, the proposal has not yet taken effect. Mbadi said the Treasury was preparing the necessary legislative measures for submission to the Attorney-General before they are forwarded to Parliament for consideration.

He expressed optimism that lawmakers would approve the changes before proceeding on recess, allowing the new tax arrangement to take effect in January.

The proposed adjustment would represent a significant change for eligible workers, particularly those whose monthly earnings fall between the existing and proposed exemption thresholds.

Employees earning above Sh32,333 would not automatically become exempt from PAYE. They would continue paying income tax under the applicable tax bands.

The final implementation will depend on the completion of the legislative process and Parliament’s approval. Until then, workers should continue observing the existing PAYE rules.

If approved as proposed, the measure would expand the number of salaried Kenyans exempted from PAYE and increase the monthly take-home pay of eligible low-income employees.

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