What happened

The Kenya Revenue Authority (KRA) has announced a draft tax proposal that would allow a deduction on earnings of Kenyans receiving Ksh50,000 or more per month. The proposal, first reported by K24 Digital, is part of the Finance Ministry’s ongoing review of personal income tax structures ahead of the next fiscal budget. While the exact deduction rate has not been disclosed, officials say the change aims to broaden the tax base and increase revenue collection. The draft is expected to be tabled in Parliament within the next few weeks for debate. Stakeholders, including business associations and labour unions, have been invited to submit feedback during the public consultation period.

Context and background

Kenya’s personal income tax system has historically been progressive, with marginal rates ranging from 10% for the lowest brackets to 30% for the highest earners. The current top marginal rate applies to monthly incomes above Ksh195,000. The new proposal targets a lower threshold – Ksh50,000 – a level that captures many mid‑level salaried employees and a sizable portion of small‑to‑medium enterprise (SME) staff. By introducing a deduction at this point, KRA hopes to capture revenue from a broader segment of the workforce that has previously fallen into lower tax brackets.

The idea of adjusting tax thresholds is not new in Kenya. In 2022, the government raised the personal relief amount and adjusted the lowest tax band to ease pressure on low‑income earners. However, the current fiscal deficit and the need to fund ambitious infrastructure projects have prompted a reassessment of revenue sources. The Finance Ministry, in collaboration with KRA, commissioned a series of studies earlier this year to model the impact of expanding the taxable base. Those studies highlighted that a modest deduction on incomes above Ksh50,000 could add several hundred million shillings to the national treasury annually.

K24 Digital, a leading digital news platform, first broke the story after a leak of the draft proposal circulated among tax consultants. The outlet quoted senior KRA officials who emphasized that the deduction is meant to be “fair and proportionate,” reflecting the ability of higher earners to contribute more without unduly burdening low‑income households. The proposal also aligns with regional trends, as neighbouring countries such as Uganda and Tanzania have recently introduced similar measures to tighten tax compliance among middle‑income earners.

Compared with what is normal

Under the existing tax code, individuals earning between Ksh30,001 and Ksh50,000 are taxed at a marginal rate of 20%, while those above Ksh50,001 fall into the 25% bracket until they reach the top tier. The proposed deduction would effectively increase the marginal rate for the Ksh50,000‑Ksh195,000 band, though the precise percentage is still under negotiation. Historically, Kenya has seen modest adjustments to tax brackets every few years, usually linked to inflation or fiscal needs. For example, the 2020 budget raised the personal relief from Ksh1,408 to Ksh2,400, a change that benefited low‑income earners more than high earners.

• Current top marginal rate: 30% for incomes above Ksh195,000 per month.
• Proposed change: introduces a deduction for incomes above Ksh50,000, potentially raising the effective rate for that band.
• Historical adjustments: typically involve relief amounts or threshold shifts rather than new deductions.

Why it matters

For Kenyan SMEs, payroll is often one of the largest recurring expenses. A higher tax deduction on salaries above Ksh50,000 could increase the cost of employing skilled staff, prompting businesses to reassess compensation packages or explore tax‑efficient remuneration structures. For employees, the change means a larger portion of their take‑home pay could be redirected to the government, affecting disposable income and household budgeting. On a macro level, the additional revenue could support critical public services, infrastructure development, and debt reduction, but it also raises questions about the balance between revenue generation and maintaining a competitive labour market.

Practical steps

• Review your payroll system now to ensure it can accommodate a new deduction once the final rates are published.
• Engage with a tax adviser to model the impact of the proposed change on your staff’s net salaries and your overall labour costs.
• Participate in the public consultation process by submitting comments through the Finance Ministry’s online portal before the deadline.
• Consider adjusting remuneration structures, such as increasing non‑taxable benefits, to mitigate the impact on employees.
• Stay updated on the final legislation by monitoring KRA announcements and reputable news outlets like K24 Digital.

Beavoren Ventures offers a specialised Tax Planning & Compliance service that can help you navigate the upcoming changes, optimise your payroll tax position, and ensure full compliance with the new regulations.

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Disclaimer: This article is informational and does not constitute formal tax, audit or legal advice. For guidance specific to your circumstances, please contact Beavoren Ventures.