Mbadi's mixed signals on PAYE proposals as he defends Finance Bill, 2026

Treasury CS John Mbadi during a media briefing on the Finance Bill 2026 in Nairobi, May 11, 2026. [Collins Oduor, Standard]

National Treasury Cabinet Secretary John Mbadi has sent mixed signals on the expected reforms to the pay-as-you-earn (PAYE) structure that could favour the low-income earners, even as he strongly defended the tax proposals in the Finance Bill, 2026.

The changes which were supposed to have been effected by now through a Tax Laws (Amendment) Bill are supposed to increase tax-free income from the current Sh24,000 a month to Sh30,000.

However, with the No Tax Laws (Amendment) Bill in place, Mbadi now says the same proposals will be inserted in the Finance Bill, 2026, currently going through public participation.

As he defended the proposals in the Finance Bill, 2026, the CS on Monday came out to explain why the set amendments were yet to be tabled before Parliament. The unfolding macro-economic situation, catalysed by the US/Israel-Iran war, is one of the reasons behind the delay.

He said his team is doing simulations on how much revenue the government has to forego, considering that there is already relief to Kenyans on the value-added tax (VAT) charged on petroleum products to cushion price volatility.

“We have not dropped the changes that we proposed. What my team is doing is a simulation. The first simulation is that we are going to lose income of about Sh35 billion per year,” he said.

Treasury CS John Mbadi during a media briefing on the Finance Bill 2026 in Nairobi, May 11, 2026. [Collins Oduor, Standard]

The CS said his team is analysing the economic situation as it is and the impact of personal income tax reforms that are being carried out at the Kenya Revenue Authority (KRA) to broaden the tax base.

“Before this public participation ends, we are going to make a decision,” he said. “As a matter of fact, we have agreed with the Head of State that this is a matter we are considering. So, before June 30, before this bill is passed, the government is likely to propose amendments to align PAYE to the proposals that we had given.”

Mbadi insisted that he has not backtracked on the reforms, insisting that the government is seriously considering those changes.

“We have agreed with the Head of State that this is an amendment that we will carry on regardless of the impact it will have on our revenue. Chances are very high that these amendments will be carried in this Finance Bill, not waiting for the Tax Laws (Amendment) Bill,” he said.

He said it was expected that these reforms would start to show in KRA’s March, April, and May numbers.

“We want the personal income tax to broaden the base. That would help us compensate for the loss,” he said. “I have not backtracked. We are considering that very seriously, and before we conclude the Finance Bill, 2026, chances are we are going to have the new tax rates for PAYE.”

The PAYE changes also seek to affect workers earning Sh30,000 to Sh50,000, for which the government proposes to reduce PAYE from 30 per cent to 25 per cent.

Further to this, Mbadi said he will seek to reintroduce the proposal on presumed profit of five per cent on mitumba, which he noted had been dropped from the final Finance Bill, 2026, published by Parliament.

He said this is one of the proposals in the bill, which has been marred with miscommunication, misinformation, and distortion.

He said the proposal came from the industry players, and a meeting was held to streamline their needs. He said the traders expressed frustration with regard to the current taxation arrangement, arguing that when mitumba are taxed at the point of entry, more taxes follow downstream.

The traders also lamented that their profit margins and the informality of their sector cannot allow hiring of accountants for tax purposes.

“They asked for a simplified tax system where they pay at the point of entry, and no one comes again to demand any taxes. That is why, apart from VAT, which is at the point of entry, we agreed with them that for income tax, we deem five per cent of the customs value of imported goods as profit. And then we tax that five per cent at 30 per cent to give you 1.5 per cent, and it comes to the final tax,” he explained.

He said he would recommend to Parliament to bring back the provision as an amendment, as it seeks to address an industry problem and not necessarily raise more revenue.

“Saying mitumba clothes will be more expensive is far from the truth,” he said.

This was the same defence he tabled for the proposals on mobile phones. He said the 2026 finance bill will, in fact, make the devices cheaper.

He explained that presently, when one imports a phone, they are charged VAT at 16 per cent, import duty at 25 per cent, excise tax at 10 per cent, import declaration at 2.5 per cent, and railway development levy at two per cent.

“If you add all that, it comes to almost 55 per cent,” he said. “We are saying we collapse all these taxes into one. Excise duty, which is currently at 10 per cent, we make it 25 per cent, but now the point of levying the tax is shifted from the point of entry to when you are activating the phone.”

He further clarified that there are no plans to raise rental income tax from the current 7.5 to 10 per cent.

“Tax proposals come and are processed by my team, and I approve them. Before I approve any tax proposal, it is not a proposal. I remember that the one on rental income, I personally signed that it must remain at 7.5 per cent,” he said.