Ruto Announces Proposed PAYE Tax Reduction for Low and Middle-Income Earners
President William Ruto has announced new tax proposals that could see many salaried Kenyans pay less Pay As You Earn (PAYE) tax if approved by Parliament.
Under the proposed changes, employees earning up to Ksh50,000 per month would benefit from a reduction in the PAYE rate, which the government plans to lower from the current 30 per cent to 25 per cent.
The President made the announcement on Wednesday while addressing United Democratic Alliance (UDA) aspirants during a meeting held at State House in Nairobi.
He explained that the proposals form part of broader tax reforms his administration intends to introduce in order to ease the financial burden facing workers, especially those in the lower and middle-income brackets.
According to Ruto, the recommendations will now be forwarded to Parliament for debate, review, and possible approval before they can take effect.
In addition to lowering the PAYE rate for those earning up to Ksh50,000, the government is also proposing a separate amendment that would completely exempt Kenyans earning below Ksh30,000 from paying income tax.
The President noted that the move is aimed at protecting low-income earners and ensuring that taxation becomes more fair and balanced.
He stated that if the proposal is implemented, about 1.5 million working Kenyans would no longer be required to pay income tax.
Ruto said the decision to consider tax reductions has been influenced by what he described as improved fiscal management and better financial outcomes since his administration assumed office in 2022.
He emphasized that the government has already begun taking steps to gradually reduce the tax burden on citizens while maintaining economic stability.
According to him, the intention is to create a tax system that supports economic growth while allowing ordinary Kenyans to retain more of their earnings.
Currently, under the existing tax structure, a worker earning Ksh50,000 falls partly within the 30 per cent PAYE tax band. However, before PAYE is calculated, several mandatory deductions are first applied to an employee’s salary.
These include contributions to the National Social Security Fund (NSSF), the 2.75 per cent Social Health Authority (SHA) levy, and the 1.5 per cent Housing Levy.
Together, these deductions significantly reduce an employee’s gross income before tax is applied.
Based on current statutory rates, a worker earning Ksh50,000 loses approximately Ksh3,000 to NSSF, about Ksh1,375 to the SHA levy, and roughly Ksh750 towards the Housing Levy.
This brings total statutory deductions to around Ksh5,125 even before PAYE is calculated. After these deductions, the taxable income drops to approximately Ksh44,875.
Using the current progressive tax system and after applying personal tax relief, such an employee typically pays about Ksh5,800 in PAYE every month.
When combined with other statutory deductions, total monthly deductions rise to slightly above Ksh11,400, leaving the employee with an estimated take-home pay of around Ksh38,600.
If Parliament approves the proposed reduction of the top PAYE rate from 30 per cent to 25 per cent, the actual amount saved by employees will depend on how the tax bands are restructured and whether personal relief levels remain unchanged.
Analysts note that while the reduction may offer some relief, the overall impact on workers’ take-home pay will still be influenced by existing statutory deductions that remain in place.
At the same time, the government continues to face pressure from the public to review or reduce other mandatory deductions, particularly the Housing Levy, which many Kenyans argue has increased financial pressure during a period of high living costs.
Critics say that while PAYE reductions are welcome, broader reforms may be necessary to significantly improve workers’ disposable income.
President Ruto, however, maintained that the proposed tax changes are part of a wider effort to make taxation more equitable, reduce economic strain on ordinary citizens, and ensure that low-income earners are better protected as the country continues to implement economic reforms.
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