LSK Pushes for PAYE Cuts and Ksh30,000 Tax-Free Salary in Finance Bill 2026

LSK Pushes for PAYE Cuts and Ksh30,000 Tax-Free Salary in Finance Bill 2026

A growing push to reduce the tax burden on Kenyan workers is gathering momentum after the Law Society of Kenya (LSK) and several leading tax advisory firms urged Parliament to overhaul the country’s Pay As You Earn (PAYE) structure under the proposed Finance Bill 2026.

The proposals, which were presented before the National Assembly’s Departmental Committee on Finance and National Planning, seek sweeping reforms aimed at increasing disposable income for salaried Kenyans who are grappling with rising living costs and increasing statutory deductions.

At the centre of the proposals is a call to introduce a tax-free salary threshold of Ksh30,000 per month, alongside lower PAYE rates across various income bands.

The recommendations come at a time when public concern over taxation continues to dominate national debate, with many employees and employers arguing that current deductions are placing unsustainable pressure on households already struggling with high fuel prices, rising food costs and increased social security contributions.

In its memorandum on the Finance Bill 2026, the LSK proposed significant restructuring of personal income tax bands to ease pressure on middle and low-income earners.

According to the society, the first Ksh30,000 of monthly income should attract a tax rate of 10 per cent, while the next Ksh8,333 should be taxed at 20 per cent.

Under the proposal, the next Ksh461,667 would be taxed at 25 per cent, income within the following Ksh300,000 bracket would attract 27.5 per cent tax, while all earnings above Ksh800,000 would remain taxed at 30 per cent.

The lawyers’ body also proposed increasing monthly personal relief from Ksh2,400 to Ksh3,000, effectively creating a tax-free threshold for workers earning up to Ksh30,000 per month.

“The cumulative effect of increased taxes and statutory deductions has significantly reduced disposable income and purchasing power,” one tax advisory firm told the parliamentary committee during stakeholder submissions.

The proposals further seek to address taxation on savings made through cooperative societies.

LSK argued that contributions made to Savings and Credit Cooperative Organisations (SACCOs) through the check-off system from employment income should no longer be treated as taxable deductions.

The society maintained that such savings perform a similar long-term financial and retirement function as pension contributions and therefore deserve equal tax treatment.

According to LSK, exempting SACCO savings from taxation would encourage a stronger savings culture while promoting financial inclusion among workers across the country.

The renewed pressure on Parliament comes after the Finance Bill 2026 failed to include earlier government promises to provide tax relief for low-income earners.

In recent months, the government had hinted at plans to raise the tax-free income threshold from Ksh24,000 to Ksh30,000, a move that had generated optimism among salaried workers.

However, the omission of the proposal from the draft Finance Bill triggered criticism from labour groups, employers and financial experts.

Tax consultants appearing before the committee warned that the current taxation structure risks weakening Kenya’s middle class and reducing consumer spending power, which could eventually slow economic growth.

One of the firms appearing before lawmakers proposed reducing the top individual tax rate from 35 per cent to 30 per cent while implementing a five-percentage-point reduction across all existing PAYE bands.

The firms argued that individuals are currently paying disproportionately higher taxes compared to corporations, creating unfairness within the tax system.

“Taxing individuals at 35 per cent while companies pay 30 per cent creates inequity and disadvantages those in formal employment,” the committee heard during the hearings.

Committee Chairperson Kuria Kimani acknowledged the concerns raised but cautioned that lowering taxes could significantly affect government revenue collection targets.

“It would also be important for you as experts to present to us statistics showing the net effect of this proposal to help us make an informed decision,” Kuria stated.

The National Assembly committee is expected to continue receiving public submissions and expert recommendations before finalising its report on the Finance Bill 2026 ahead of parliamentary debate.

The outcome of the proposed reforms is likely to attract nationwide attention as Kenyans await possible relief from rising taxation and increasing economic pressure.

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LSK Pushes for PAYE Cuts and Ksh30,000 Tax-Free Salary in Finance Bill 2026