By John Otini
The banking sector is urging the government to cut Pay-As-You-Earn (PAYE) rates across all brackets, warning that continued financial strain on households could fuel social and political instability as the country approaches the 2027 elections. In a high-level presentation to the National Development Implementation Committee (NDIC), the Kenya Bankers Association (KBA) told policymakers that rising taxes, shrinking real wages, and weak consumer demand are undermining economic resilience and could destabilize the business environment.
“With about 20 months to the General Elections, we need stability before and after the polls — and central to this is restoring the lost purchasing power for Kenyans and businesses,” said KBA Chief Executive Officer Raimond Molenje. “As the private sector, instability in politics, government, and the economy hits us harder.”
The presentation, delivered before Cabinet Secretaries and Principal Secretaries under the chairmanship of Prime Cabinet Secretary Musalia Mudavadi, made a strong case for urgent tax reforms. Treasury Cabinet Secretary John Mbadi and Principal Secretary Dr. Chris Kiptoo were also present as the banking industry argued that fiscal consolidation cannot succeed when households remain financially stretched. Bankers said the current tax regime is constricting economic activity and urged government to “let tax policy work for people, not against them.”
Recent history has reinforced the link between economic hardship and political tension. In the past two years, widespread protests over taxes and the cost of living left several youths dead and led to vandalism of malls and supermarkets. The memory of that unrest looms over businesses that fear renewed instability ahead of 2027. According to KBA data sourced from the Kenya National Bureau of Statistics (KNBS), real wages have fallen by 12 per cent over the past five years, eroding disposable income, weakening demand, and reducing purchasing power across all income groups.
Molenje warned that falling incomes are already translating into subdued consumer spending, slower lending growth, and rising credit risks — trends that could worsen as elections draw closer. “A stable and predictable economic environment is essential for investment, job creation, and sustainable growth,” he said, adding that the banking sector is ready to support efforts that strengthen fiscal prudence and competitiveness.
KBA recommended revising PAYE tax bands to immediately boost take-home pay. Kenya’s current top income tax rate of 35 percent, the bankers argued, is suppressing consumption and discouraging private investment. Their proposal calls for reducing the lowest tax rate from 10 percent to 5 percent; lowering the mid-tier bands from 25–32.5 percent to between 20 and 25 percent; and cutting the highest band from 35 percent to 30 percent. Aligning the top PAYE rate with the corporate tax rate, the bankers said, would restore purchasing power, stimulate demand, and ultimately drive higher tax revenue through increased economic activity.
With 78 percent of Kenyans under 35 and youth unemployment estimated by the World Bank at 67 percent, KBA said that the country faces one of the highest youth joblessness rates in Africa. More than one million young people enter the labour market each year.
The bankers warned that this demographic pressure threatens both economic progress and national cohesion. “In Africa, there are over 200 million people aged between 15 and 24 years — nearly 60 percent of the unemployed,” the presentation noted. “For Kenya, youth unemployment is not just an economic problem; it is a threat to the country’s long-term stability.”
To address this challenge, the KBA proposed three targeted interventions. The first is a government-backed subsidy model. The second is a system of tax relief for firms that employ and train young people, similar to models used in Canada, Brazil, Denmark, and the UK. The third is a strengthened credit-guarantee framework to unlock financing for youth-owned enterprises, supported by cash-reserve rebates for lenders who extend credit to youth-led MSMEs.
