Kenya Abandons Plan to Eliminate PAYE Tax for Low-Income Earners

Treasury Cabinet Secretary John Mbadi has clarified why the government reversed its decision to eliminate Pay As You Earn (PAYE) tax for individuals earning less than Sh30,000. According to Mbadi, implementing this change would have cost the tax authority approximately Sh30 billion, with the tax relief only possible in the future if additional revenue sources can cover this shortfall. He mentioned personal income tax and rental income tax as key areas where the Treasury aims to restructure systems to generate increased revenue, potentially enabling reduced PAYE rates in the future. These reforms, if successful, will yield greater personal income tax collection to offset the loss, while rental income tax represents another avenue for improvement. We are advancing these measures but remain committed to implementing the previously announced tax relief proposal, he stated on Monday. In a briefing at Treasury headquarters, Mbadi explained that heavy taxation of low-income earners results from widespread tax evasion by wealthier individuals. Consequently, the Kenya Revenue Authority (KRA) is pursuing access to citizens’ financial information to address underpayment and deliberate tax evasion by high-net-worth individuals. Reducing PAYE to lessen the tax burden on citizens would have been possible, but tax avoidance by some income earners places an undue load on compliant taxpayers, Mbadi stated during discussions on the 2026 Finance Bill. The Treasury chief called for public support of KRA’s initiative to access personal financial data for determining taxable income estimates. The Treasury official maintained that financial information constitutes public records and should therefore be accessible to KRA. He assured the public that mobile money transactions like M-Pesa would not be classified as income but would be monitored to identify wallet activity potentially qualifying as taxable revenue. M-Pesa represents fund transfers, not income, and will not be subject to taxation, the Cabinet Secretary stated, while suggesting that opponents of financial data access may be involved in money laundering and resisting accountability. Mbadi added, Should my bank account show substantial unexplained transactions, wouldn’t it be appropriate to at least pay taxes on them? KRA should access this data to determine whether it constitutes income. It would then be my responsibility to clarify, for instance, that these funds originated from family members or partners and do not represent income.