NAIROBI —Hopes of a tax break for salaried Kenyans have been dashed after the Treasury announced it was shelving plans to ease income tax. The decision comes after the Kenya Revenue Authority (KRA) failed to meet its revenue collection targets for the current financial year.
Appearing before the Senate on Wednesday, Treasury Cabinet Secretary John Mbadi confirmed that his ministry had explored lowering the Pay As You Earn (PAYE) tax rate. But with government income falling short, the proposal was put on ice.
“We did some simulations on how to reduce the Pay As You Earn,” Mr Mbadi told senators. “What stopped us from implementing it in this Finance Bill was the failure by KRA to meet its revenue targets.”
The government had initially set an ambitious target of KSh2.787 trillion for the 2023/2024 fiscal year. That was later revised down to KSh2.537 trillion. Even so, KRA only managed to collect KSh2.407 trillion falling KSh130 billion short, and hitting just under 96 percent of the revised figure.
While the final tally marked an 11.1 percent rise from last year’s revenue, it wasn’t enough to support new tax relief measures.
The Treasury blamed a mix of global and domestic pressures for the shortfall. These include the continued weakening of the Kenyan shilling against the US dollar, rising bank lending rates, and international supply chain disruptions fuelled by ongoing conflicts in key trading regions.
Economic analysts say Kenya’s fiscal space remains tight, as the government balances rising debt repayments with public service demands. In this climate, even well-intentioned relief proposals must wait.
“Reducing PAYE would have brought real relief to workers struggling with inflation,” said Nairobi-based economist Faith Mburu. “But without strong collections, the Treasury has little room to manoeuvre.”
Still, Mr Mbadi insisted that the proposal had not been abandoned entirely.
“We are optimistic that with the reforms underway at KRA especially in automating systems and improving efficiency we may revisit the PAYE reduction in the next Finance Bill,” he said.
Reform of KRA’s tax collection systems has long been on the agenda. The government is pushing for a shift toward digital systems and data-driven tracking to catch tax cheats and broaden the base.
For now, many Kenyans will have to keep digging deeper into their paycheques. The shelving of the PAYE cut comes amid other cost pressures, including fuel taxes, healthcare levies, and proposed hikes in VAT under the new budget.
“We understand the strain,” Mr Mbadi added. “But the priority for now is to stabilise revenue collection and improve compliance. Only then can we pass the savings back to citizens.”
The next Finance Bill is expected to be tabled in mid-2026. Whether it will include long-awaited tax relief will depend, once again, on how much money the government can raise and how efficiently it collects it.
