Mbadi Plans to Scrap Ksh28,800 Annual PAYE Relief For Employees

Treasury Cabinet Secretary John Mbadi has announced plans to abolish the annual Ksh28,800 personal tax relief currently enjoyed by salaried workers. The proposal forms part of planned changes to Pay As You Earn (PAYE) aimed at exempting employees earning Ksh32,333 monthly or less.

Speaking on Thursday, October 22, Mbadi said the government intends to adjust income tax bands instead of relying on the existing relief system. He added that the Treasury would submit the proposed changes to Parliament the following week.

The plans could change how employers calculate income tax deducted from workers' monthly salaries. However, the final impact will depend on the revised tax bands and how Parliament considers the proposal.

How the Current Personal Relief Works

Under the existing system, eligible employees receive personal tax relief of Ksh2,400 monthly, equivalent to Ksh28,800 annually. Employers deduct this amount from the income tax calculated on an employee's salary before remitting the remaining PAYE to the Kenya Revenue Authority (KRA).

For example, an employee whose calculated monthly income tax is Ksh5,000 receives Ksh2,400 in personal relief. The employer therefore deducts Ksh2,600 in PAYE instead of the full Ksh5,000.

The relief reduces the amount of income tax workers pay and increases their take-home earnings. It has been particularly important for lower-income employees whose monthly salaries leave limited room for essential expenses.

Under the current progressive tax structure, monthly taxable income is taxed at different rates depending on the amount earned. The existing bands start at 10 per cent on the first Ksh24,000, followed by 25 per cent on the next Ksh8,333, with higher rates applying to additional income.

Government Proposes Higher Tax-Free Income Threshold

Mbadi's announcement follows President William Ruto's decision to raise the proposed PAYE exemption threshold from Ksh30,000 to Ksh32,333 monthly. The President announced the revised figure during the 63rd Mashujaa Day celebrations in Uasin Gishu on October 20.

Ruto said he had instructed the National Treasury to prepare the proposal for submission to Parliament. He argued that exempting lower-income workers would leave them with more money for food, transport and school expenses.

The proposed threshold is intended to ensure workers earning Ksh32,333 or less do not pay PAYE. The Treasury now wants to achieve this through adjustments to the tax bands rather than the current personal relief arrangement.

Why the Proposed Changes Matter

Abolishing personal relief without making corresponding changes to the tax bands could increase the tax burden for some workers. Employees who currently benefit from the Ksh2,400 monthly deduction could lose that advantage if the replacement structure does not adequately compensate them.

However, the government's stated intention is to exempt workers within the proposed income threshold from PAYE. The final tax calculations will therefore be crucial in determining whether employees receive the promised benefit.

The proposal also raises questions about how workers earning above Ksh32,333 would be affected. Their eventual tax obligations will depend on the revised bands and any additional provisions included in the legislation.

Treasury Also Targets Stamp Duty

Mbadi said the planned legislative proposals would include removing stamp duty on land transactions valued below Ksh1 million. The measure would introduce another tax-related change alongside the proposed PAYE adjustments.

The Treasury is expected to present the proposals to Parliament for consideration. Until the changes are formally approved and implemented, employers must continue applying the existing tax rules.

Workers should therefore avoid assuming that the proposed exemption or removal of personal relief has already taken effect. The legislation and final tax bands will determine how the changes affect take-home salaries and employer deductions.