Treasury Delays PAYE Tax Cuts, Low-Income Earners Left Waiting

Treasury Cabinet Secretary John Mbadi has gone back on his word with regards to introducing income tax relief for salaried workers taking home less than Sh50,000 a month - a move that's bound to disappoint millions of Kenyans struggling to make ends meet in the face of rising living costs.

The decision, effectively, shelves plans to revise the Pay-As-You-Earn (PAYE) tax bands that were supposed to increase people's take-home pay and bring some much-needed financial relief to more than a million Kenyans.

What Went Down Earlier

Back in February, Mbadi had hinted that the government – with President William Ruto at the helm – would speed up tax relief measures even though they were outside of the usual budget cycle.

Some of the key changes proposed included:

• Bumping up the tax-free income threshold from Sh24,000 to Sh30,000
• Helping ease the burden on earnings between Sh30,000 and Sh50,000 a month

Everyone had high hopes that this would help - and here are some of the benefits expected:

• Workers taking home Sh30,000 a month would have seen an extra Sh731 per month
• Those on Sh35,000 a month would have had an extra Sh1,500 knocking about
• Salaries of Sh50,000 a month would have seen a Sh2,127 increase in net pay

At the time, the Treasury really did seem to be in a rush, planning to table a Tax Laws (Amendment) Bill 2026 months ahead of the main budget - and well before other tax changes that were part of the bill.

Why The Plan Hit A Roadblock

That fast-track approach has now been abandoned.

Mbadi told Parliament that the Treasury had a change of heart because the standalone Tax Amendment bill just so happens to be really close to the Finance Bill 2026, which has to be tabled by April 30 and passed by June.

In simple terms, rather than push through two separate tax changes in quick succession, the government is now planning to shelve their tax changes until the broader Finance Bill comes around.

Practically what that means is:

• No quick-fix for PAYE problems
• Workers are going to have to keep waiting for some sort of relief
• Any changes to tax rates or thresholds are now in the hands of parliament

The Timing of It All: Tough Times For Households

The timing of this U-turn couldn't be worse.

According to the Kenya National Bureau of Statistics, inflation went up to 4.4% in March - largely because of a big jump in food prices. And in the last month, things actually got a bit better - but not for long.

At the same time:

• Average real wages are actually going down
• Statutory deductions have jumped significantly

For a lot of people, their disposable income is slowly but surely disappearing.

Who is going to get hit the hardest?

The numbers show just how big the impact will be:

• 1.36 million workers earn Sh50,000 or less a month
• That's 42.2% of Kenya’s formal workforce on very tight budgets
• Over 1 million workers fall within the Sh30,000–Sh49,999 range

These are exactly the people the proposed tax relief was meant to help.

Another Problem: Statutory Deductions

Even without PAYE changes, workers are already feeling the pinch from higher statutory deductions:

• National Social Security Fund (NSSF) contributions have gone up
• Social Health Insurance Fund (SHIF) now takes 2.75% of gross pay
• The Affordable Housing Levy adds another 1.5% on top of that

For some individuals, NSSF contributions have shot up from as little as Sh200 to as high as Sh6,480 per month.

These kinds of changes are just making life for workers even harder.

Bigger Picture: Possible Alternatives

The delay also raises questions about how best to ease the tax burden.

The Kenya Bankers Association thinks that a uniform 5% reduction in PAYE rates across the board would be much simpler than trying to restructure the different tax brackets.