PAYE changes: Scrapping Ksh.2,400 relief raises questions over employees’ take-home pay

The proposal, announced during Mashujaa Day celebrations on October 20, seeks to increase the amount of income taxed at zero per cent while removing the existing personal relief, which reduces the income tax payable by eligible employees.

Under the proposed arrangement, the first Ksh.32,333 of monthly income would be taxed at zero per cent. The Ksh.2,400 personal relief would be scrapped for eligible employees regardless of whether they earn below or above that threshold.

This means the removal of personal relief is not limited to low-income earners who would benefit from the expanded tax-free band. Employees earning above Ksh.32,333 would also lose the existing relief, while continuing to be subject to the applicable PAYE rates on income above the zero-rated band.

The proposed scrapping of monthly personal relief is in line with the National Treasury’s Medium-Term Revenue Strategy for FY2024/25 to FY2026/27, which proposed reviewing and rationalising tax reliefs as part of efforts to strengthen revenue collection.

National Treasury Cabinet Secretary John Mbadi and National Assembly Finance and Planning Committee chair Kuria Kimani have said a Bill to implement the changes is expected in Parliament next week.

The proposal would retain the existing higher PAYE rates of 25 per cent, 30 per cent, 32.5 per cent and 35 per cent, rather than reduce the rates applied to higher income bands.

Personal relief is currently worth Ksh.2,400 a month, or Ksh.28,800 annually, for eligible resident employees. It is deducted from the income tax calculated under the existing PAYE structure.

Under the proposed changes, the government intends to replace that relief with a zero-rated income band extending to Ksh.32,333 a month.

However, while the expanded zero-rated band would reduce the tax charged on income within that range, scrapping personal relief would remove an existing tax benefit for employees who currently claim it.

Also, the proposed PAYE changes would not automatically eliminate other statutory deductions from employees’ salaries.

These include the Affordable Housing Levy and contributions to the Social Health Insurance Fund, which are calculated separately from PAYE under the applicable rules.

Consequently, even workers who qualify for the proposed PAYE exemption would continue to face other applicable deductions.

The proposal addresses income tax rather than the full range of deductions affecting employees’ take-home pay.

The PAYE announcement follows earlier government assurances that workers earning Ksh.30,000 or less would be exempted from PAYE.

In February 2026, Ruto and Mbadi announced plans to introduce the exemption. However, the measure was not included in the Finance Act 2026, prompting questions about when the promised relief would be implemented.

In June, Mbadi maintained that the proposal remained under consideration.

The threshold was subsequently raised to Ksh.32,333 in the President’s Mashujaa Day announcement on October 20.

The Treasury is expected to introduce legislation to implement the proposal. Parliament must approve the necessary changes before they take effect.

Until then, employers must continue calculating and deducting PAYE under the existing rules.