PAYE Tax u-turn sparks backlash from bankers, accountants and lawyers

A rare alliance of professional bodies has emerged to protest the decision by the National Treasury to abandon proposed Pay-As-You-Earn (PAYE) reforms, which would have offered relief to salaried workers across Kenya.

The Kenya Bankers Association (KBA), the Law Society of Kenya (LSK), and the Institute of Certified Public Accountants of Kenya (ICPAK) are actively pushing the Finance and National Planning Committee to reintroduce tax reforms into the current Finance Bill.

Initial policy discussions indicated that individuals earning less than KSh30,000 would be exempt from PAYE, while additional relief would extend to employees earning slightly above that specific threshold.

The exclusion of these relief measures from the final draft of the Finance Bill has drawn sharp criticism from stakeholders, who argue that the formal employment sector is bearing a disproportionate share of the national tax burden.

National Treasury Cabinet Secretary (CS) John Mbadi stated that implementing the proposed PAYE reductions would result in an annual revenue loss estimated between KSh30 billion and KSh35 billion.

The Treasury maintains that broader compliance reforms must be achieved in under-taxed sectors before any meaningful reductions in PAYE can be implemented.

Financial sector representatives and economists counter that lowering the income tax burden would enhance disposable income, stimulate consumer spending, and support broader business growth.

Professional organizations argue that existing tax bands have failed to keep pace with changing economic conditions, leaving salaried workers to grapple with rising statutory deductions and elevated living costs.