Treasury Proposes PAYE Changes That Could See Some Kenyan Workers Pay More Tax

The National Treasury has proposed changes to Kenya’s Pay As You Earn (PAYE) tax rules that could reduce income tax for some employees while increasing deductions for others.

The proposal seeks to raise the monthly income threshold exempt from PAYE from KSh 24,000 to KSh 32,333. The government says the move is intended to give lower-income workers more money to meet their daily expenses.

Under the proposed arrangement, employees earning KSh 32,333 or less per month would not pay PAYE. Those earning between KSh 32,334 and KSh 50,000 could also benefit from reduced income tax.

However, the plan comes with a major change: the government intends to scrap the KSh 2,400 monthly personal relief currently available to eligible resident employees.

This means workers earning above KSh 50,000 could pay more income tax because they would lose the personal relief without receiving enough benefit from the expanded tax-free threshold to offset the difference.

Treasury estimates indicate that an employee earning KSh 60,000 could pay about KSh 473 more in monthly PAYE, while someone earning KSh 100,000 could pay an additional KSh 892. Employees earning KSh 200,000 could face an increase of approximately KSh 3,867 per month.

The changes are expected to increase the number of formal-sector workers exempt from PAYE by about 362,846, bringing the total to approximately 1.69 million.

Despite the proposed exemption, workers would still be subject to other applicable statutory deductions, including the Affordable Housing Levy, Social Health Insurance Fund contributions and National Social Security Fund contributions.

The proposal is not yet law. Treasury Cabinet Secretary John Mbadi and National Assembly Finance and Planning Committee chair Kuria Kimani have indicated that legislation to implement the changes is expected to reach Parliament for consideration.

Until Parliament approves the necessary amendments and they take effect, employers must continue applying the existing PAYE rules.

The proposal therefore offers potential relief to lower-income earners, but employees on higher salaries may have to contend with increased income tax deductions if the changes are approved.

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