The Kenya Bankers Association’s proposal to restructure PAYE bands is not radical; it is overdue. It is a sober admission that the current tax architecture is choking the very people who keep the economy alive. Salaried Kenyans are not living large. They are surviving. When a policy proposal from bankers—hardly known for populism—acknowledges that purchasing power has collapsed, the government must pause, listen, and act.
Over the last few years, inflation has quietly but violently eroded real incomes. Rent, food, transport, electricity, school fees, and healthcare have risen faster than wages. PAYE, however, has remained rigid, indifferent to economic reality. The result is a workforce that works harder every year yet lives poorer every month. Tax policy that ignores this is not neutral; it is destructive.
The KBA proposal to exempt income below Sh30,000 and progressively tax higher bands is a rational starting point. It aligns with global best practice in progressive taxation and recognises that taxation should follow ability to pay, not mere participation in the labour market. Taxing subsistence wages is not fiscal discipline; it is economic cruelty disguised as policy.
When KBA CEO Raimond Molenje argues that restoring disposable income will stimulate spending, saving, and investment, he is stating a basic macroeconomic truth. Consumption drives demand. Demand sustains businesses. Businesses employ people and repay loans. Banks remain stable. Government revenues ultimately rise. Starving households, by contrast, shrink the tax base over time.
However, while the proposal is commendable, it does not go far enough. In today’s Kenya, Sh30,000 is not disposable income; it is survival income. Even Sh50,000 barely sustains a small household in an urban setting. If the government is serious about economic recovery, incomes below Sh60,000 should not be taxed at all. Tax should begin where discretion begins, not where desperation starts.
Exempting incomes below Sh60,000 would immediately inject liquidity into the economy without a single stimulus package or new borrowing. That money would flow directly into food markets, transport systems, retail shops, schools, clinics, and SACCOs. It would circulate faster and more efficiently than any government programme ever could.
Critics will argue that the government cannot afford such generosity. This argument collapses under scrutiny. Kenya does not have a revenue problem; it has an efficiency and trust problem. Leakages through corruption, wastage, inflated procurement, and policy inconsistency cost the Exchequer far more than PAYE relief for low-income earners ever would. Taxing the poor to compensate for state inefficiency is morally and economically indefensible.
There is also a behavioural dimension government must confront. Over-taxation of low and middle incomes fuels informality, tax evasion, and disengagement. People lose faith in the social contract when they feel punished for honest work. Progressive relief, on the other hand, rebuilds trust and encourages compliance, productivity, and long-term participation in the formal economy.
Banks understand this reality better than most because they see it in loan books and repayment schedules. When disposable incomes fall, defaults rise. When households breathe, credit performs. The KBA proposal is therefore not charity; it is risk management for the entire financial system and, by extension, for the economy.
Furthermore, raising the tax burden gradually on higher incomes—as proposed—remains fair and defensible. Those earning above Sh100,000 and especially above Sh400,000 have greater shock-absorption capacity. Progressive taxation ensures equity without stifling ambition. It signals that Kenya rewards effort but does not cannibalise survival.
The government must also recognise the political economy implications. A population under constant financial stress is unstable, angry, and disengaged. PAYE reform is not just an economic lever; it is a social stabiliser. It reduces pressure on households, lowers dependency, and restores dignity to work.
Endorsing the KBA proposal, therefore, should be the minimum response. Expanding it to exempt incomes up to Sh60,000 would be a bolder, more honest acknowledgement of Kenya’s cost-of-living reality. It would show that policy is informed by lived experience, not spreadsheet abstractions.
If the government truly wants growth, compliance, and social cohesion, it must stop taxing poverty and start taxing prosperity intelligently. The economy cannot recover on the backs of exhausted workers. Listening to this proposal—and strengthening it—would be a rare moment of policy wisdom in a time.
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