Kenya Bankers Association calls for 5% salary tax reduction to boost households

Kenya Bankers Association has welcomed the move by the National Treasury to adopt a tax exemption for Kenyans earning Ksh.30,000 and below.
The bankers’ umbrella body is now calling on the government to cut salary taxes by at least five per cent across the board, arguing that the move would ease pressure on household incomes and stimulate economic activity.

While welcoming recent signals by the Treasury to exempt low-income earners from Pay As You Earn (PAYE), the lobby group described the proposal as a “weak signal” that falls short of addressing the broader tax burden facing workers.

The Kenya Bankers Association, which has long advocated for a review of tax rates in the country, welcomed the sentiments of the National Treasury to exempt more Kenyans from the PAYE tax bracket, calling it a step in the right direction.

The bankers further want the government to ensure fairness by reducing the tax rate for all income bands by five per cent and capping the maximum tax rate on salaries at 30 per cent.

“Tax on individual income should not be more than the tax we levy in our corporates. For corporates, we have capped it at 30 per cent, yet for income earners we have gone as high as 35 percent,” said Raimond Molenje, CEO, Kenya Bankers Association.

That’s why we are saying let’s live within the law and within policies we have agreed on consultatively, and because the macros are looking good, it’s time to live to the spirit of that policy.”

The inclusion of those earning up to Ksh.30,000 will see the number of salaried Kenyans exempted from PAYE increase from the current four percent to about six percent of those in formal employment, or about 204,000 Kenyans. The bankers contend this number is not significant enough to create meaningful impact.

“Exempting up to Ksh.30,000 earners is a good signal, although a weak signal. We need to ensure that as a country we become very bold, and that’s why as the Kenya Bankers Association we are advocating for a five percent reduction across all PAYE bands,” said Molenje.

The association further warned that a partial exemption for low-income earners alone may not achieve the maximum intended impact of the policy shift but could instead create challenges in the labour market.

“When it comes to taxation relief, let it apply to all categories of workers. It may look good when applied to low earners, but if you haven’t considered the employment perspective, companies may face challenges. Even as a company, you cannot increase salaries for high-income earners and ignore the rest,” Molenje added.