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Treasury Cabinet Secretary John Mbadi has raised Kenyans’ hopes of enjoying lower taxes in the near future, after revealing that the government is considering reducing Pay As You Earn (PAYE) rates and corporate taxes.
However, he has made it clear that any such relief hinges on the success of ongoing reforms at the Kenya Revenue Authority (KRA).
Speaking during a session in the Senate on Wednesday, CS Mbadi disclosed that the National Treasury had conducted simulations aimed at reducing PAYE and corporate tax from the current 30% to 28% as it drafted the Finance Bill 2025.
Treasury Cabinet Secretary John Mbadi
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However, the proposals were put on hold due to KRA’s underperformance in meeting revenue targets.
“We even did some simulations on how to reduce the PAYE. But what stopped us from implementing it with this finance bill… was the failure by KRA to meet its revenue targets,” Mbadi told Senators.
He explained that while the Treasury is committed to easing the tax burden on Kenyans and the business community to increase disposable income and support economic growth, such measures will only be introduced once KRA proves capable of raising sufficient revenue through its ongoing structural reforms.
“As we carry along with the reforms at the KRA, we should not be doing too many things at the same time. First, let us see what the reforms at KRA in terms of automation and in terms of making it efficient are yielding to us,” he added.
The remarks come at a time when the National Assembly is set to consider the Finance Bill 2025.
Mbadi’s statement indicates that the Treasury sees a phased approach as more prudent, first stabilising revenue collection mechanisms at KRA, then potentially implementing tax reliefs in the 2026 Finance Bill.
If realised, the move could provide much-needed relief to millions of Kenyan workers and businesses grappling with high costs amid slow economic recovery.
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World Bank recommends slashing PAYE tax
The World Bank recently made several key recommendations to adjust the PAYE tax system in Kenya, aiming to make personal income tax more equitable and reduce the tax burden on low-income earners while increasing it for higher earners.
The bank proposed the introduction of a new 15% tax bracket for individuals earning between Sh24,000 and Sh32,000 per month.
Treasury Cabinet Secretary John Mbadi
This is intended to ease the tax burden on lower-income earners currently paying higher rates.
The current 30% tax bracket, which covers a wide income range, would be split into two: those earning between Sh32,000 and Sh167,000 would pay 25%, while those earning between Sh167,000 and Sh500,000 would pay 32.5%.
The World Bank suggests exempting those earning less than Sh32,333 per month from the housing levy, which currently takes 1.5% of their monthly pay.
This exemption is expected to reduce labour costs for low-income earners and encourage formal employment with minimal revenue loss.
The bank also recommended waiving Social Health Insurance Fund (SHIF) contributions for informal workers and low-income earners in the formal sector, proposing that the government should finance these contributions instead.
It also recommended increasing the PAYE rate for high-income earners to 38% for those earning over Sh800,000 monthly.
This is a rise from the current top rate of 35% and aims to make the tax system more progressive.
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How PAYE is currently calculated
As of 2025, Kenya’s Pay As You Earn (PAYE) system operates on a graduated tax scale that increases with income.
The current PAYE bands were adjusted in the Finance Act 2023, and took effect from July 1, 2023.
The tax bands and corresponding rates are as follows;
For employees earning up to Sh24,000 per month (or Sh288,000 annually), the applicable PAYE rate is 10%.
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This represents the lowest tax band and typically covers lower-income earners.
The next Sh8,333 per month (equivalent to Sh100,000 annually) is taxed at a higher rate of 25%. This second tier targets middle-income earners.
The third band, which applies to the next Sh467,667 per month (or Sh5,612,000 per year), is taxed at 30%.
This is the standard rate and applies to a broad section of upper-middle-class income earners.
After that, individuals earning an additional Sh300,000 monthly (or Sh3.6 million annually) fall into the 32.5% tax bracket, marking the start of high-income taxation.
Finally, any income above Sh800,000 per month (or Sh9.6 million annually) is taxed at the highest rate of 35%.
In addition to the above, all resident employees are entitled to a personal relief of Sh2,400 per month, which adds up to Sh28,800 annually.
This relief amount is deducted from an employee's tax liability, effectively reducing the total PAYE payable.
This progressive tax structure is designed to ensure equity in taxation, with higher earners contributing more to the national revenue pool, while those on lower incomes are taxed less.