The Law Society of Kenya (LSK) is pushing hard for an extensive overhaul of the country’s income tax system, demanding that the government raise the tax-free salary threshold to KSh30,000 and significantly lower Pay As You Earn rates for all working Kenyans ahead of the Finance Bill 2026.
In a detailed memorandum submitted to the National Assembly’s Departmental Committee on Finance and National Planning, the LSK laid out a new PAYE band structure that would sharply reduce the tax burden on low- and middle-income earners. Under the proposal, the first KSh30,000 of monthly income would be taxed at 10%, down from the current rate, with progressively higher bands capped at a top rate of 30% — down from the current 35%. Personal relief would also be raised from KSh2,400 to KSh3,000 per month, effectively making KSh30,000 entirely tax-free.
“The cumulative effect of increased taxes and statutory deductions has significantly reduced disposable income and purchasing power,” a leading tax advisory firm told the Finance Committee during stakeholder hearings this week — a view that echoed the LSK’s own submission.
The LSK delegation, which appeared before the committee on May 21, also raised concerns over the reintroduction of previously rejected tax proposals and the impracticality of cutting the tax return filing deadline from six to four months.
Beyond PAYE, the LSK is calling for contributions to Savings and Credit Cooperative Organisations (SACCOs) made through the check-off system to be treated as non-taxable — just like pension contributions. SACCOs hold over KSh1.2 trillion in member deposits, largely from salaried workers, and the Society argues that penalising saving is both economically harmful and unfair.
The LSK is not alone. The Kenya Bankers Association (KBA) and the Kenya Union of Savings and Credit Co-operatives (KUSCCO) have made similar calls. KBA CEO Raimond Molenje told Parliament: “When workers take home more pay, they spend more, save more, and invest more. The trend supports small businesses, creates jobs, improves loan repayment, and ultimately grows government revenue.”
KNBS data cited in the hearings shows real wages have declined 12% since 2021 once inflation and new statutory deductions are factored in, including the Housing Levy and the Social Health Insurance Fund.
The good news for workers is that the proposal is gaining political traction. Treasury CS John Mbadi confirmed the KSh30,000 threshold is still under active consideration, and President William Ruto has backed the idea publicly, stating that 1.5 million Kenyans would drop off the tax roll entirely if the reform goes through.
The revenue cost, however, is steep — Treasury estimates a KSh35 billion annual shortfall. Whether the government can absorb that gap without raising other taxes will be the defining question as Finance Bill 2026 heads toward its final stages.
