The Kenya Bankers Association (KBA) has argued that proposed Pay As You Earn (PAYE) relief targeted only at low-income earners will have a limited impact on economic growth, urging the government to instead implement a uniform tax cut across all income bands.

While welcoming National Treasury Cabinet Secretary John Mbadi’s proposal to exempt workers earning up to Sh30,000 from PAYE and grant a 5 percent relief to those earning up to Sh50,000, KBA Chief Executive Officer Raimond Molenje said the approach would not generate sufficient economic activity to offset lost tax revenues.

“However, if we apply PAYE relief for lower earners only, we will be creating a gap in revenue collection because that relief will not be able to spur economic activities the way a 5 percent PAYE cut across income tax brackets would,” Molenje said.

The proposed tax relief was initially championed by William Ruto and the Treasury as part of measures aimed at easing the cost of living and boosting household spending.

However, KBA has proposed a broader reform that would see a uniform 5 percent reduction in PAYE across all income brackets while capping the top tax rate at 30 percent.

According to the bankers’ lobby, such a move would inject approximately Sh28 billion into the economy annually, stimulate consumer spending, and unlock up to Sh210 billion in economic activity.

The association further argues that increased household disposable income would boost demand for goods and services, supporting businesses, job creation and government revenues through higher VAT collections and economic expansion.

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Despite the proposal, Treasury dropped plans to introduce the PAYE relief in the Finance Bill 2026, citing an estimated Sh35 billion revenue shortfall that would have widened the budget deficit.

The decision dealt a blow to thousands of workers who had anticipated lower tax deductions amid rising living costs and increased statutory contributions.