How Your Net Pay Will Change If Mbadi’s PAYE Cut Proposals Pass

Treasury Cabinet Secretary John Mbadi on Monday, February 2, announced plans to increase the tax-free pay from the current Ksh24,000 to Ksh30,000.

As part of the proposed changes aimed at offering relief to salaried Kenyans, Mbadi also expressed that the government would be reducing the Pay As You Earn (PAYE) rate for Kenyans earning below Ksh50,000.

The current 30% rate, which applies to incomes starting at about Ksh33,000, will be reduced to 25%. 1.2 million Kenyans out of the 3.2 million Kenyans are set to benefit from the PAYE changes.

“Any Kenyan earning Ksh30,000 and below should not pay Pay As You Earn. You pay zero. We have said the government should come for my money and leave the person earning Ksh30,000 alone.

“We are reducing that bracket between Sh30,000 and Sh50,000 to 25 per cent. That is a reduction of five per cent,” he stated.

Also Read: Mbadi’s PAYE Cuts Extended to Kenyans Earning Ksh50,000 & Below 

Current PAYE Rates 

At the moment, Kenyans earning below Ksh24,000 do not pay PAYE. Kenyans who earn a higher income also do not pay PAYE on the first Ksh24,000 since the tax rate is graduated. This is achieved through a personal relief of Ksh2,400, which benefits every salaried person. 

On the next Ksh8,333, the current tax rate is 25%, while on the next Ksh467,667, the tax rate is 30%. On the next Ksh300,000, the tax rate is 32.5%. On the other hand, all income above Ksh800,000 is taxed at a rate of 35%.

Proposed PAYE Rates and New Net Salaries 

If the proposal by the Treasury CS sails through, it means the first Ksh30,000 will be exempted from PAYE, and the next Ksh20,000 will be taxed at a rate of 25%. 

If you earn Ksh30,000 today, your PAYE stands at Ksh731 as it only applies to the amount that is above Ksh24,000. Under the proposed changes, you will pay zero for PAYE. However, the statutory deductions will remain.

 Old Payslip for Ksh30,000 Gross Earner

Gross Pay: Ksh30,000

Net Pay: Ksh26,193

New Payslip for Ksh40,000 Gross Earner

Gross Pay: Ksh30,000

Net Pay: Ksh26,925

Change: +Ksh731

If you currently earn Ksh40,000, your PAYE stands at Ksh3,153. Under the proposed changes, this will reduce to Ksh1,475. Taking home Ksh1,678 more.  Under the current rates, the net pay for this salary band is Ksh32,746. In the new changes, their net pay will be Ksh34,425.

For someone earning Ksh50,000 gross, their PAYE now stands at Ksh5,845. Under the proposed rates, their PAYE will be Ksh3,718, meaning that they will be taking home Ksh2,127 more. 

If the current tax bands remain unchanged for amounts above Ksh50,000, the pool of salaried Kenyans who will have a higher take-home is likely to increase. 

This will mean that for people earning over Ksh50,000, the tax they pay on the first Ksh50,000 will reduce. For instance, a Kenyan earning Ksh100,000 gross currently pays about Ksh19,308 in PAYE under the existing tax bands.

Also Read: Treasury's Plan to Cut PAYE Gains Momentum Under New Proposal

If the proposed changes are passed and the reduced rates apply to the first Ksh50,000, that same worker would pay about Ksh17,181 in PAYE, translating to roughly Ksh2,100 more in monthly take-home pay, even though their salary is well above the Ksh50,000 threshold.

However, Treasury CS John Mbadi has not yet provided full details on how income above Ksh50,000 will be taxed under the new regime. 

While the proposals clearly favour low- and middle-income earners, Mbadi has hinted that higher-income Kenyans may continue to face steeper rates, meaning the final impact for top earners will depend on how the remaining tax bands are structured once the final amendments are tabled in Parliament.