NAIROBI, Kenya, May 15 – A proposed uniform five percent reduction in Pay As You Earn (PAYE) tax across all income bands could inject Sh28.1 billion into Kenya’s economy annually, spur job creation and expand government revenues through increased consumption, according to the Kenya Bankers Association (KBA).
The lobby said the tax cut would immediately generate Sh42 billion in GDP output and support more than 36,000 jobs every year by boosting household spending power and stimulating demand for goods and services.
“A uniform 5 percent reduction in PAYE across all income bands can release KES 28.1 billion into the economy annually,” the association said.
“Generate KES 42 billion in immediate GDP output and support 36,000-plus new jobs annually.”
The proposal comes amid mounting pressure on Kenyan workers from rising statutory deductions, including the top PAYE rate of 35 percent, the 1.5 percent Affordable Housing Levy, 2.75 percent contributions under the Social Health Insurance Fund (SHIF), and increased NSSF deductions.
According to the bankers’ lobby, the deductions have contributed to a 10.7 to 12 percent decline in real incomes over the last five years, weakening consumer purchasing power and slowing private sector growth.
KBA argued that reducing PAYE would help align personal taxation with Kenya’s broader tax framework, where corporate tax stands at 30 percent while the top individual PAYE rate remains higher at 35 percent.
The association further noted that increased disposable income would likely raise household spending, boost VAT collections and support higher business turnover, helping the government recover part of the revenue foregone through the tax cut.
KBA estimates that the expanded economic activity could generate between Sh27.1 billion and Sh31.5 billion in additional tax revenues within the first year, while contributing to a wider GDP expansion estimated at Sh210 billion.
The proposal adds to growing calls from private sector players for tax reforms aimed at stimulating domestic demand, supporting SMEs and easing pressure on salaried workers amid the high cost of living.
