The Law Society of Kenya and prominent tax advisory bodies are intensifying calls for personal income tax restructuring, urging Parliament to reduce Pay As You Earn rates and alleviate financial pressure on salaried employees, a proposal conspicuously missing from the Finance Bill 2026.
Through a formal memorandum submitted to the bill, LSK further requests the Treasury to exempt cooperative society savings from taxation. Specifically, the Society advocates for contributions to savings and credit cooperative organizations, which are deducted via the check-off system from employment income, to receive non-taxable status.
Currently, these contributions are classified as taxable deductions, despite serving functions similar to pension payments for long-term savings and retirement purposes, LSK contends. The Society maintains that aligning their tax treatment with pensions would encourage systematic savings and enhance financial inclusion.
Regarding personal income tax, LSK suggests taxing the initial Ksh30,000 of monthly earnings at 10 percent, the subsequent Ksh8,333 at 20 percent, and the following Ksh461,667 at 25 percent. Income in the next bracket of Ksh300,000 would incur a 27.5 percent rate, while earnings exceeding Ksh800,000 would face a 30 percent tax. Additionally, LSK seeks to increase monthly personal relief to Ksh3,000, establishing a Ksh30,000 tax-free threshold.
This proposal gained significant traction this week as financial and tax advisory entities presented before the National Assembly’s Departmental Committee on Finance and National Planning. During the second day of stakeholder consultations, every participating organization emphasized the necessity of incorporating PAYE reforms into the legislation, asserting that the middle class has reached a critical point.
One taxation firm advocated for comprehensive bracket restructuring, proposing that the maximum individual rate be reduced from 35 percent to 30 percent and implementing a five-percentage-point adjustment. The firm also encouraged the committee to elevate monthly personal relief from Ksh2,400 to Ksh3,000 and establish a Ksh30,000 tax-free minimum.
“The combined impact of higher taxes and mandatory deductions has substantially diminished disposable income and purchasing capacity,” the firm informed the committee, noting that taxing individuals at 35 percent while corporations are taxed at 30 percent creates unfairness and places formal employees at a disadvantage.
Committee Chairman Kuria Kimani warned that these modifications might reduce government revenue and requested the firms to provide calculations of the overall impact. “It would be valuable for you as specialists to present data demonstrating the net consequences of this proposal to enable us to make a well-considered decision,” he stated.