Mbadi's mixed signals on PAYE proposals as he defends Finance Bill

Kenya's Finance Cabinet Secretary John Mbadi has added fresh ambiguity to the government's PAYE (Pay As You Earn) reform agenda, offering cautious support for tax structure changes while stopping short of committing to specific relief measures for low-income earners. His equivocal stance on personal income tax adjustments within the Finance Bill 2026 signals internal tension between Treasury revenue targets and political pressure to ease the tax burden on ordinary workers.

## What exactly is Mbadi proposing on PAYE relief?

Mbadi's public statements on PAYE restructuring have been deliberately vague. He has acknowledged that reform is "under consideration" and that the government recognizes the "hardship" faced by low-income earners struggling with current tax brackets. However, he has avoided confirming whether the Finance Bill 2026 will include concrete relief—such as raising the tax-free threshold (currently KES 24,000 annually), adjusting marginal tax bands, or introducing targeted exemptions. This ambiguity suggests either ongoing internal negotiations within the Treasury or deliberate political positioning ahead of stakeholder consultation.

The Cabinet Secretary's defense of the broader Finance Bill 2026, meanwhile, emphasizes revenue mobilization as essential for debt servicing and infrastructure investment. Kenya's public debt exceeded 70% of GDP in 2024, constraining fiscal space. Yet this argument directly contradicts any genuine PAYE relief, which would reduce government collections from the salaried workforce—currently one of the most efficient tax bases to administer.

## Why are salary earners demanding PAYE reform?

Kenya's formal workforce has endured cumulative tax increases over five years without corresponding wage growth. Real wages have stagnated while inflation eroded purchasing power, particularly for mid-income professionals earning KES 40,000–150,000 monthly. The 2023–2024 Finance Bills introduced new levies (mobile money transfer tax, motor vehicle tax, eco levy) that compounded the burden on salaried workers already paying income tax, housing levy (1.5% of gross), and social security contributions (NSSF). Unions and civil society have repeatedly called for PAYE threshold reform as a priority.

## Market implications and investor considerations

Mbadi's hedging reflects a genuine policy dilemma. Aggressive PAYE relief would support domestic consumption—benefiting retail, telecommunications, and consumer finance sectors—but would shrink government revenue and potentially widen the fiscal deficit. Conversely, maintaining current PAYE structures risks further public backlash and could suppress wage demand, limiting economic dynamism. International investors monitoring Kenya's macro stability are watching whether Treasury prioritizes medium-term fiscal consolidation or near-term social cohesion.

The mixed signals also suggest that final PAYE provisions in the Finance Bill 2026 may emerge as compromise measures: modest threshold adjustments (perhaps 5–8% increase) rather than transformative relief. Such half-measures could satisfy neither workers nor fiscal hawks, leaving the political risk unresolved heading into 2027 elections.

Clarity on PAYE is expected when Parliament debates the Finance Bill in detail, likely triggering fresh stakeholder pressure.

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