New PAYE Tax Bands Set for Debate in Parliament Ahead of Finance Bill 2026 Vote

New PAYE Tax Bands Set for Debate in Parliament Ahead of Finance Bill 2026 Vote

NAIROBI, Kenya – Millions of Kenyan workers could soon see significant changes in how their salaries are taxed after Parliament tabled proposed amendments to the Pay As You Earn (PAYE) structure under the Finance Bill 2026.

The proposed changes, which are set to be debated by the National Assembly ahead of the crucial Finance Bill vote, seek to introduce new tax bands aimed at creating a more progressive taxation system while offering relief to lower-income earners.

Documents tabled before Parliament indicate that Kathiani MP Robert Mbui has proposed amendments to Clause 22 of the Finance Bill 2026, introducing a revised PAYE framework that would alter tax obligations across different income groups.

The proposal comes at a time when the government is seeking to balance revenue collection needs with growing public concerns over the rising cost of living and taxation burdens on workers.

Under the proposed structure, annual income of up to KSh360,000 would attract a tax rate of 10 per cent, providing a lower tax burden for workers within the lowest income bracket.

In addition, the next KSh100,000 earned above that threshold would be taxed at 17.5 per cent. The new band would represent a significant departure from the current tax structure and is intended to create a smoother transition between lower and middle-income earners.

If approved, individuals earning between KSh460,000 and KSh6.072 million annually would fall under a 25 per cent tax band, a category expected to cover a substantial portion of Kenya’s salaried workforce.

The amendments further propose a 27.5 per cent tax rate on the next KSh3.6 million of income, targeting higher-income earners while creating a clearer distinction between middle and upper-income categories.

For top earners, any income exceeding KSh9.6 million annually would attract the highest tax rate of 30 per cent.

“The proposed amendments seek to create a more progressive taxation structure while ensuring fairness across different income categories,” parliamentary documents state.

According to projections, the revised PAYE framework could directly affect more than 3.1 million Kenyan workers who currently contribute Pay As You Earn taxes to the Kenya Revenue Authority (KRA).

Should Parliament approve the amendments, the new PAYE bands would take effect on January 1, 2027, allowing employers, payroll administrators, and employees adequate time to adjust their payroll systems and financial planning.

Beyond income tax reforms, the Finance Bill 2026 also proposes significant changes to the taxation of digital transactions.

One of the key amendments seeks to broaden the definition of royalties to include digital payment card networks and platforms. The revised definition would cover transaction fees, processing charges, network fees, and other payments associated with access to proprietary digital payment systems.

Analysts believe the proposal could affect major international and local payment service providers operating in Kenya’s rapidly growing digital economy.

The Bill also introduces amendments targeting the gambling sector. Under the proposed changes, the definition of “winnings” would be revised to specifically refer to payouts arising from lotteries and prize competitions conducted by entities licensed under the Gambling Control Act, 2025.

The proposed tax reforms have already sparked debate among lawmakers, economists, employers, and workers, with supporters arguing that the changes would create a fairer tax regime while critics question their potential impact on disposable incomes and business costs.

As the National Assembly prepares for debate and voting on the Finance Bill 2026, the proposed PAYE amendments are expected to be among the most closely scrutinised provisions, given their direct impact on millions of taxpayers and the country’s broader economic landscape.

The outcome of the parliamentary vote could shape Kenya’s tax policy for years to come, influencing household incomes, government revenues, and the overall cost of doing business in the country.

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New PAYE Tax Bands Set for Debate in Parliament Ahead of Finance Bill 2026 Vote