Mbadi Confirms Plan to Lower PAYE Tax and Bank Lending Rates

Treasury Cabinet Secretary John Mbadi has revealed plans to review the Pay-As-You-Earn (PAYE) tax, aiming to ease the financial strain on Kenyan workers.

Speaking at the launch of the 2024 FinAcess Survey, Mbadi acknowledged that high salary taxes remain a major challenge, with 8% of employees’ salaries currently going toward taxes.

“We have listened to the public. Despite inflation dropping to a 17-year low, the shilling strengthening against major currencies, and the economy growing above the Sub-Saharan Africa average, people still say they have no money,” Mbadi said, highlighting the need for tax relief.

CS Mbadi attributed the high taxes to a significant budget deficit that initially exceeded Kes.900 billion, forcing the government to focus on increasing domestic revenue and reducing reliance on debt.

However, he pointed out that recent measures have reduced the deficit to Kes.780 billion, with expectations to lower it further to below Kes.760 billion in the next financial year.

“As the deficit decreases, the benefits will be passed on to employees,” he added.

In addition to taxes, Mbadi emphasized that high bank rates are another major hurdle, limiting credit access, especially for small businesses. He urged financial institutions to lower lending rates to support economic growth and ease the burden on businesses.

The CS also appealed to the Central Bank of Kenya (CBK) governor to continue engaging with banks to reduce lending rates further.

“I thank the CBK governor for the ongoing talks with the banks. Changes in lending rates directly affect businesses,” Mbadi said.

While the base lending rate has decreased to 12%, Mbadi remains hopeful for additional reductions following the CBK’s Monetary Policy Committee meeting on December 5, 2024.

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