The government is preparing one of the most significant personal income tax changes in over a decade, targeting relief for low- and middle-income earners amid persistent cost-of-living pressures.
The proposal, approved by President William Ruto and set to be tabled in Parliament through the Tax Laws (Amendment) Bill 2026, seeks to exempt all workers earning Sh30,000 and below from Pay As You Earn (PAYE) tax while lowering rates for those earning up to Sh50,000.
Treasury Cabinet Secretary John Mbadi announced the move on February 2, 2026, during the Budget and Privatisation Public Engagement Forum for the Upper Eastern region held at Meru National Polytechnic, bringing clarity to months of debate around wage stagnation and rising household expenses.
What exactly is being proposed
At the centre of the reform is a recalibration of PAYE thresholds to cushion workers earning “survival wages”.
Under the proposal, the tax-free income threshold will rise from Sh24,000 to Sh30,000 per month. This means employees earning up to Sh30,000 will no longer pay income tax. In addition, workers earning between Sh30,000 and Sh50,000 will see their PAYE rate reduced from the current 30 per cent to 25 per cent on income within that band.
Treasury estimates indicate that approximately 1.7 million salaried workers will benefit from the combined measures, with about 1.5 million of them falling within the low-income category.
“We have agreed with President William Ruto that low-income earners should be given a reprieve and to this effect, I am preparing to take a proposal to Parliament on the Tax Law Amendment Bill once it resumes,” Mbadi said.
How much more money will workers take home
The proposed changes translate into immediate gains in disposable income.
A worker earning Sh30,000 currently pays PAYE on income above Sh24,000. At prevailing rates, this amounts to roughly Sh1,800 per month in income tax. Under the new proposal, that tax bill drops to zero, leaving the worker with an additional Sh21,600 per year.
For someone earning Sh40,000, the savings are even more pronounced. Under the current system, income above Sh32,333 is taxed at 30 per cent. Under the proposed framework, income between Sh30,000 and Sh50,000 will attract a lower rate of 25 per cent, translating to an estimated monthly tax saving of about Sh1,250, or Sh15,000 annually.
Treasury projections suggest that the total increase in disposable income across affected households could exceed Sh25 billion annually, money expected to flow directly into consumption, rent, transport, food, and basic services.
Why the treasury is acting now
Unlike previous tax adjustments typically introduced through the annual Finance Bill in June, the Treasury is seeking early implementation through a targeted amendment bill.
According to the National Treasury, household consumption has been weakening, particularly among salaried workers earning below Sh50,000. Data shows that rent, transport, and food costs now absorb more than 70 per cent of income for households in this bracket, leaving little room for savings or discretionary spending.
Mbadi noted that many workers are currently earning wages that barely sustain daily living, limiting their contribution to economic demand. By increasing take-home pay, the government hopes to stimulate consumer spending and support small businesses reliant on domestic consumption.
The revenue impact and how Government plans to offset it
The tax relief comes with a cost. Treasury estimates indicate a short-term revenue loss running into several tens of billions of shillings annually.
To compensate, the government plans a multi-pronged strategy. First, it intends to accelerate the privatisation of select state-owned enterprises to generate non-tax revenue. Second, it will expand the tax base by tightening compliance among high-income earners and professionals in the informal and non-salaried sectors.
The Kenya Revenue Authority has also intensified system-based monitoring, using data matching and digital tools to identify tax leakages, particularly among businesses and individuals previously outside the tax net.
What happens next
The proposal will be formally presented to Parliament once it resumes sittings later this month. If approved, the changes could take effect before the mid-2026 budget cycle, marking an unusually early intervention in income tax policy.
If implemented as planned, the reforms would represent a decisive shift in Kenya’s tax strategy, prioritising relief for low-income workers while placing greater enforcement pressure on higher earners and under-taxed sectors.
For millions of Kenyan households, the proposed changes could mean the difference between financial strain and modest breathing room in an economy still grappling with rising living costs.
