The National Assembly is set to consider significant changes to Kenya’s Pay As You Earn (PAYE) tax system as lawmakers debate the Finance Bill 2026, which proposes new income tax bands for salaried workers.
The proposed amendments, introduced ahead of the Finance Bill vote, seek to restructure income taxation by creating additional tax brackets and adjusting how earnings are taxed across different income levels.
If approved, the changes would take effect on January 1, 2027, affecting millions of employees in both the public and private sectors.
Proposed Tax Bands Target Different Income Levels
Under the proposed framework, annual earnings of up to Ksh360,000 would be taxed at 10 per cent, maintaining a lower tax burden for workers in the lowest income bracket.
A new tax band would then apply to the next Ksh100,000 of income, which would attract a tax rate of 17.5 per cent. The introduction of this bracket is intended to create a more gradual progression between lower and middle-income earners.
Income ranging from Ksh460,000 to Ksh6.072 million annually would fall under a 25 per cent tax rate, covering a large segment of Kenya’s salaried workforce.
For higher earners, the proposal introduces a 27.5 per cent rate on the next Ksh3.6 million of income, while earnings exceeding Ksh9.6 million annually would attract the highest rate of 30 per cent.
Millions of Workers Could Be Affected
The proposed adjustments are expected to impact more than three million PAYE taxpayers currently contributing income tax through the Kenya Revenue Authority (KRA).
Supporters of the changes argue that the revised structure creates clearer distinctions between income groups while offering a more progressive taxation system.
Employers would also be required to update payroll systems ahead of the proposed implementation date in 2027 should Parliament approve the amendments.
Bill Also Targets Digital Payment Networks
Beyond income tax reforms, the Finance Bill 2026 proposes changes to the definition of royalties under Kenyan tax laws.
The amendments seek to include fees associated with digital payment card networks and proprietary payment platforms. These would cover transaction charges, processing fees, network fees and other payments linked to digital financial infrastructure.
The move is expected to have implications for international payment service providers and card networks operating within the country.
Gambling and Prize Winnings Included in Reforms
The Bill also introduces changes affecting the gambling sector by redefining the term “winnings.”
Under the proposal, winnings would specifically refer to payouts arising from lotteries and prize competitions conducted by entities licensed under the Gambling Control Act, 2025.
Lawmakers are expected to scrutinize the proposals during debate before deciding whether the measures will form part of Kenya’s tax framework for the coming years.
The Finance Bill 2026 remains one of the most closely watched pieces of legislation, with its provisions expected to influence government revenue collection, business operations and household incomes across the country.
