Kenya’s New PAYE Plan: Who Will Pay More Tax?

Thousands of Kenyan employees could soon experience a major change in their monthly payslips following the government’s proposed overhaul of the Pay As You Earn (PAYE) tax system. While the plan promises relief for low-income earners, those receiving higher salaries may have to shoulder a bigger tax burden.

Treasury Cabinet Secretary John Mbadi announced that the government intends to raise the tax-free income threshold from KSh24,000 to KSh32,333 per month. Under the proposal, employees earning KSh32,333 or less would no longer pay PAYE.

The adjustment is expected to benefit approximately 362,846 additional formal-sector workers, bringing the number of employees exempt from income tax to about 1.69 million.

However, there is another side to the announcement. The government plans to scrap the existing monthly personal tax relief of KSh2,400, which currently reduces the tax payable by eligible employees.

Consequently, workers earning above KSh50,000 could face increased PAYE deductions. Treasury estimates indicate that someone earning KSh60,000 monthly could pay approximately KSh473 more in tax, while an employee earning KSh100,000 could see an additional KSh892 deducted every month. Those earning KSh200,000 could pay approximately KSh3,867 more.

For employees earning between KSh32,334 and KSh50,000, the proposed changes could bring modest tax savings.

Importantly, zero PAYE does not mean zero deductions. Contributions towards the National Social Security Fund (NSSF), Social Health Insurance Fund (SHIF) and Affordable Housing Levy would still apply under the relevant rules.

The proposal is intended to increase disposable income among lower-paid workers while redistributing part of the tax burden.

However, the changes are not yet law. Parliament must consider and approve the necessary legislation before employers can implement the new arrangement.

As Kenyans await further developments, the big question remains: will the proposed tax changes genuinely improve household finances?

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