Proposal to cut PAYE by 7% introduced

The Institute of Certified Public Accountants of Kenya (ICPAK) has put forward a proposal to reduce the highest Pay As You Earn (PAYE) tax rate by 7%.

During the public hearing for the Finance Bill 2025, stakeholders recommended cutting the top PAYE rate from 35% down to 28%, alongside raising the monthly personal relief from Sh2,400 to Sh3,000.

Additionally, ICPAK has recommended widening the PAYE tax bands to enhance Kenya’s competitiveness, boost disposable income, and stimulate economic growth.

They also proposed conducting a comparative study with other countries to inform these adjustments.

On the matter of Income Tax Exemption Approval, ICPAK suggested extending the approval timeframe from the current 60 days to 90 days.

ICPAK officials argued that keeping the approval period at 60 days would prevent uncertainty about applicants’ tax status during the waiting period.

Regarding the Bill’s proposal that employers apply all deductions, reliefs, and exemptions before remitting PAYE, stakeholders recommended retaining the current system where relief is deducted after computing PAYE, warning that the new approach could increase employees’ tax liabilities.

ICPAK also urged the removal of the Bill’s proposal to eliminate the 15% corporate tax incentive for local assemblers, emphasizing that maintaining this incentive is crucial to attracting investment, promoting long-term economic growth, and creating jobs in the local automotive sector.

Additionally, regarding the proposed taxation changes for real estate companies, ICPAK recommended preserving the 15% preferential income tax rate for developers who build at least 100 residential units, arguing that this measure supports the affordable housing agenda and helps curb rising housing costs.

The Cabinet has approved the Finance Bill 2025 following a meeting chaired by President William Ruto at State House, Nairobi, in April.

Key measures in the Bill include simplifying tax refund procedures, closing legal loopholes that hinder revenue collection, and reducing tax disputes through amendments to the Income Tax Act, VAT Act, Excise Duty Act, and Tax Procedures Act.

Additionally, employers will be mandated to automatically apply all eligible tax reliefs and exemptions when calculating Pay As You Earn (PAYE) taxes for their employees.

The Cabinet also approved the Public Finance Management (Amendment) Bill, 2024.