Bankers renew demand for govt to slash tax imposed on salaries

The Kenya Bankers Association (KBA) has once again urged the government to implement a five percent reduction in Pay-As-You-Earn (PAYE) taxes across all income brackets. KBA Chief Executive Officer Raimond Molenje emphasized that this adjustment could boost disposable income for workers, stimulate economic demand, and foster job creation.

Molenje highlighted that higher disposable income would enhance consumers' purchasing power, providing businesses with a stronger market for their goods and services. This, in turn, would bolster banks' confidence in lending to various sectors, including agriculture, micro, small, and medium-sized enterprises (MSMEs), and groups.

He stated that banks assess borrowers not only based on financial records but also on the strength of business cash flow and demand. Although credit growth has been notable, with a 10.6 percent increase in June, Molenje stressed that demand remains a critical factor in sustaining economic activity. The KBA's proposal, which has been previously suggested to yield significant economic benefits, projects that a uniform five percent PAYE cut could inject over Ksh28.1 billion into the economy annually, generate approximately Ksh42 billion in immediate GDP output, support more than 36,000 jobs, and unlock at least Ksh140 billion in formal lending capacity.

Additionally, the banking sector anticipates that the move could generate between Ksh27.1 billion and Ksh31.5 billion in additional government revenue, helping to compensate for the revenue lost during the initial year of the reduction. The KBA argues that lower PAYE taxes would enhance household spending, stimulate demand for goods and services, benefiting SMEs and the manufacturing sector.

The association also points out that lower taxes would reduce the burden on salaried workers, who currently face high statutory deductions, including PAYE rates of up to 35 percent, the Affordable Housing Levy, Social Health Insurance Fund contributions, and increased National Social Security Fund (NSSF) deductions.