Treasury Cabinet Secretary has revealed plans that will see the government lower the Pay as You Earn (PAYE) over the next two years in a bid to expand Kenyans' disposable income.
Mbadi, while speaking at the 41st Annual Seminar, Edition II, of the Institute of Certified Public Accountants of Kenya (ICPAK) in Mombasa on Wednesday, November 20, admitted the tax plight facing Kenyans as he highlighted a radical tax reduction strategy amid a broadening tax base.
"In terms of money, Kenyans feel they are overtaxed. That is a question we must address," Mbadi said. "Going forward we must reduce taxes. We may leave the housing levy, but we can reduce PAYE. That is something that we must talk about, and as CS Finance, we must talk about it."
While pointing to the broadening tax base, Mbadi noted that with the right strategies, PAYE, which is among the heftier levies imposed on Kenyans' pay slips, could be reduced significantly within the next two years.
This, according to the CS, would inevitably increase Kenyans' spending power, thus enabling them to pump cash back into the economy, leading to growth.
He added, "We are broadening the tax base, if we enhance the personal income tax and rental income tax and collect the correct VAT, in the next 1 or two years, we will be able to lower the PAYE."
"The question is not whether it goes to SHIF or housing. What you want is a better package in your hand to go to the market to promote economic growth."
Dig Deeper: According to the taxman, an employer is required to apply the Individual Income Tax Rates referred to as bands, that range from 10 per cent to 35 per cent for purposes of computing PAYE. This is as per the Finance Act 2023.
In the first band, for example, employees with a monthly pay of up to Ksh24,000 incur a PAYE levy of 10 per cent. Employees earning a gross salary of Ksh800,000 and above fall in the fifth band, which sees them deducted 35 per cent to go towards PAYE.
Mbadi's latest sentiments came barely two weeks after he announced new tax proposals seeking to expand the definition of the digital marketplace in a bid to build more revenue.
With this move, the Treasury seeks to impose new taxes on income acquired over business done over the Internet or an electronic network. The proposal is set to bring owners of these businesses into the tax net.
The new proposals came after the seventh and eighth reviews on disbursement revealed that the Treasury fell short of their targets by Ksh34.3 billion. In addition, the withdrawal of the Finance Bill 2024 which had sought to bring in proposals that were aimed at increasing revenue necessitated the fresh Amendment Bill.
