What happened

The Kenya Revenue Authority (KRA) announced a new tax rule that will affect how salaries are taxed, with a compliance deadline of 30 April 2026. The announcement was published in People Daily and signals a shift in the Pay‑As‑You‑Earn (PAYE) framework that businesses must adopt before the cut‑off date. KRA has urged all employers, from large corporations to micro‑enterprises, to adjust their payroll systems to reflect the new requirements. Failure to meet the deadline could trigger penalties, interest charges, or audits under the authority’s enforcement mandate.

Context and background

KRA’s decision follows a series of fiscal adjustments aimed at broadening the tax base and improving revenue collection. Earlier in the fiscal year, the authority introduced changes to corporate tax rates and value‑added tax (VAT) thresholds, and the salary rule is the latest component of that reform agenda. The new rule is expected to recalibrate the tax brackets that apply to employee earnings, potentially altering the amount of PAYE deducted each month. While the exact band adjustments have not been disclosed in the brief announcement, the move aligns with KRA’s stated goal of simplifying tax administration and reducing loopholes.

The payroll landscape in Kenya has historically been guided by the Income Tax (PAYE) Regulations, which set progressive rates ranging from 10 % for low‑income earners to 30 % for higher earners. Employers typically rely on KRA’s online iTax portal and payroll software to calculate deductions, remit taxes, and file monthly returns. The upcoming rule will require updates to these systems, as well as staff training to ensure accurate computation. Companies that have previously struggled with compliance – especially those in the informal sector – may face heightened scrutiny as the authority tightens its oversight.

Stakeholders, including the Federation of Kenya Employers (FKE) and the Kenya Association of Manufacturers (KAM), have called for clarity on the rule’s specifics. In prior consultations, they highlighted concerns about the administrative burden on small and medium‑size enterprises (SMEs) that lack sophisticated payroll departments. KRA has indicated that guidance notes and a detailed implementation manual will be released in the coming weeks, giving businesses a window to adapt before the 30 April deadline.

Compared with what is normal

Under the existing PAYE structure, Kenyan employers deduct tax based on a set of progressive bands that have remained largely unchanged for several years. The new rule is expected to introduce at least one additional bracket or modify the threshold at which higher rates apply. This contrasts with the status quo where the 30 % top rate kicks in for monthly earnings above Sh 140,000. Historically, salary‑related tax changes have been introduced during the annual budget cycle, giving companies up to six months to implement adjustments. By setting a fixed deadline of 30 April, KRA is compressing the preparation period compared with previous reforms that allowed a longer transition.

  • Previous reforms allowed a 90‑day grace period after publication; the current deadline leaves roughly 60 days for full implementation.
  • The top PAYE rate of 30 % has been in place since 2015; any increase or new bracket would be the first major shift in over a decade.
  • Historically, payroll software updates were rolled out in the second quarter; this rule demands earlier system upgrades.
  • SMEs typically allocate 5‑10 % of payroll budgets to compliance; the new rule may raise that proportion if additional calculations are required.
Why it matters

For Kenyan SMEs, salaries constitute a large share of operating costs, and any change in tax deduction rates directly impacts cash flow. An increased PAYE liability means higher monthly outflows, which can strain working capital, especially for businesses that operate on thin margins. Moreover, inaccurate deductions expose employers to penalties that can range from 5 % to 25 % of the unpaid tax, plus interest. Employees, on the other hand, may see a reduction in net take‑home pay, affecting household budgeting and consumption patterns. The rule also has broader macro‑economic implications: higher tax collections could boost government revenue, but if not managed well, could suppress consumer spending and slow growth.

Practical steps
  • Review the upcoming KRA guidance notes as soon as they are published and compare the new brackets with your current payroll tables.
  • Engage your payroll software provider to confirm that system updates can be deployed before 30 April; request a test run to verify calculations.
  • Conduct an internal audit of recent PAYE filings to identify any discrepancies that may need correction under the new rule.
  • Communicate transparently with staff about potential changes to net salaries, offering explanations and, if possible, phased adjustments to minimise shock.
  • Set aside a contingency reserve equal to roughly 5 % of monthly payroll to cover any unexpected tax liabilities or penalties.

Beavoren Ventures’ Tax Planning & Compliance service can help you interpret the new KRA rule, adjust your payroll processes, and ensure timely filing to avoid penalties.

Need help with compliance? Email info@beavorenventures.co.ke or call +254 716 296 857.

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.