- Banks and SACCOs want PAYE tax changes
- They propose raising tax-free income to Sh40,000
- Real wages have dropped despite salary increases
- New deductions are reducing take-home pay
- SACCOs report rising loan defaults and dormant accounts
Commercial banks and savings and credit cooperatives (SACCOs) have asked the government to urgently review the Pay As You Earn (PAYE) tax system, warning that workers are under growing financial pressure. They say rising taxes, new statutory deductions, and high inflation are eating into salaries and leaving households struggling to cope.
In separate submissions to the National Treasury, the Kenya Bankers Association (KBA) and the Kenya Union of Savings and Credit Cooperatives (KUSCCO) proposed that the tax-free income threshold be raised to Sh40,000. They also recommended reducing the highest PAYE rate to 30 per cent, arguing that the current tax bands no longer match today’s cost of living.
According to the two groups, many workers feel poorer despite earning slightly higher salaries, as prices of basic goods and services continue to rise.
Data from the Kenya National Bureau of Statistics (KNBS) shows that real wages have been falling for several years. The average real monthly wage dropped from Sh62,256 in 2020 to Sh55,451 in 2024, meaning workers lost about Sh6,800 in purchasing power.
This decline has been made worse by new deductions such as the housing levy, higher health insurance contributions, and increased pension payments, which have significantly reduced take-home pay.
KBA and KUSCCO warned that shrinking incomes are affecting the financial sector. Workers are finding it harder to repay loans and save money, increasing the risk of loan defaults.
KUSCCO revealed that SACCOs are already seeing more dormant accounts and delayed loan repayments, a sign that members are struggling financially.
The lobby groups argue that revising PAYE bands would leave workers with more disposable income. This, they say, would help families meet daily needs, repay loans, and save for the future.
They also believe higher take-home pay would boost spending in areas such as tourism, hospitality, and entertainment, which could eventually increase government revenue through VAT, excise duty, and corporate taxes.
Under the current system, income up to Sh24,000 is taxed at 10 per cent, while higher earnings attract rates of up to 35 per cent.
KUSCCO has proposed a new structure where: The first Sh40,000 is tax-free, Income between Sh40,001 and Sh60,000 is taxed at 20 per cent, The next Sh400,000 is taxed at 25 per cent, Any income above Sh500,000 is capped at 30 per cent
The cooperative body said wider tax bands would make the system fairer and protect low-income earners from rising living costs.
These proposals come at a time when the government faces increasing pressure to collect revenue while also easing the burden on households already stretched by higher taxes and everyday expenses.
