Why Treasury abandoned plan to reduce PAYE in the Finance Bill 2026
The National Treasury has defended the absence of immediate Pay As You Earn (PAYE) relief measures in the Finance Bill 2026
The National Treasury has defended the absence of immediate Pay As You Earn (PAYE) relief measures in the Finance Bill 2026 following growing criticism from lawyers, economists, and salaried workers.
In a statement on Saturday, May 9, the Treasury said the government was pursuing a more inclusive tax reform strategy aimed at redistributing the tax burden across sectors instead of relying heavily on salaried employees.
The clarification came in response to concerns raised by former Law Society of Kenya (LSK) President Faith Odhiambo, who questioned several proposals in the Finance Bill 2026, including the absence of the expected PAYE relief measures despite earlier promises by the government.
According to the Treasury, the current reform direction seeks to widen the tax base by targeting sectors that have historically remained under-taxed, including digital services, informal trade, and certain corporate tax structures.
It argued that the long-term goal is to gradually reduce pressure on PAYE earners by ensuring more sectors contribute fairly to revenue collection.
The Treasury further stated that public participation on the Finance Bill 2026 is still ongoing, adding that tax policy remains dynamic and responsive to concerns raised during consultations.
“Public participation remains ongoing, reinforcing that tax policy is iterative and responsive, with the long-term goal of easing pressure on PAYE through a broader, more balanced tax base,” the clarification read in part.
The explanation comes after months of expectations that the government would introduce lower PAYE rates for salaried workers, particularly low-income earners struggling with rising deductions and the high cost of living.
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Earlier this year, Treasury Cabinet Secretary John Mbadi announced plans to exempt Kenyans earning below Ksh30,000 from paying PAYE altogether.
President William Ruto had also announced proposals to reduce the tax rate for workers earning up to Ksh50,000 from 30 per cent to 25 per cent, saying the move would benefit millions of employed Kenyans.
However, the Finance Bill tabled in Parliament did not include the anticipated restructuring of PAYE bands, triggering criticism from stakeholders who accused the government of backtracking on earlier commitments.
Odhiambo argued that the omission was significant because many salaried Kenyans had already expected relief measures to reflect in the new tax proposals.
Pressure has also been mounting from the Kenya Bankers Association (KBA), which previously proposed raising the minimum taxable income from Ksh24,000 to Ksh30,000 while lowering tax rates across several PAYE bands.
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