The Institute of Certified Public Accountants of Kenya (ICPAK) has proposed a reduction of the top Pay As You Earn (PAYE) tax rate by 7%, aiming to relieve taxpayers and stimulate economic activity.
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Top PAYE Rate to Drop From 35% to 28%
During the public hearing on the Finance Bill 2025, ICPAK recommended reducing the highest PAYE tax rate from 35% to 28%. The body also called for an increase in monthly personal relief from Ksh 2,400 to Ksh 3,000 to increase disposable income for Kenyan workers.
Proposal to Expand PAYE Bands
To improve Kenya’s tax competitiveness, ICPAK suggested broadening PAYE tax bands. They proposed a comparative study with other countries to develop a more inclusive and growth-friendly tax framework.
Tax Relief Processing and Employer Deductions
Stakeholders pushed back against a clause that would mandate employers to apply tax reliefs before calculating PAYE. They argued to maintain the current method of applying reliefs after computing PAYE, warning that the proposed change could increase tax burdens for employees.
Change in Tax Loss Deduction and Incentives for Assemblers
ICPAK further proposed increasing the cap on tax loss deductibility from five years to fifteen years and called for indefinite carry-forward of investment-related losses. They also opposed a plan to eliminate the 15% corporate tax incentive for local car assemblers, citing its importance in job creation and long-term investments.
Tax Breaks for Real Estate to Continue
To support the affordable housing agenda, ICPAK advised against removing the 15% preferential tax rate for developers constructing at least 100 residential units. Removing this would likely drive up housing costs and reduce access for low-income Kenyans, they warned.
Cabinet Endorses Finance Bill 2025
The proposals come shortly after the Cabinet approved the Finance Bill 2025 in a session chaired by President William Ruto. Key provisions in the bill include amendments to several tax acts, streamlining tax refunds, and requiring employers to apply all eligible reliefs and exemptions in PAYE computation.
Additionally, the Cabinet also approved the Public Finance Management (Amendment) Bill 2024, aiming to strengthen fiscal governance and close revenue collection loopholes.
If adopted, ICPAK’s recommendations could ease tax burdens for millions of Kenyans, support key development sectors, and position Kenya as a more competitive economy in the region.
